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Begbies Traynor Red Flag Alert Statistics signal Credit Crunch is biting hard

Ric Traynor

Business Health Statistics

| April 28th 2009

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Begbies Traynor Red Flag Alert Statistics signal Credit Crunch is biting hard

Credit Crunch resulting in four times as many companies experiencing “Critical Problems”

Over 3300 companies experiencing critical problems in Q1 2008
South East and East Anglia worst affected with more than 1500 ‘critical’ companies in Q1
Formal insolvency appointments up 19 per cent in first quarter, accelerating in April
140,000 companies face ‘significant problems’ during quarter one.

Begbies Traynor, the UK’s leading business rescue, recovery and restructuring specialist, today reveals that the number of UK companies experiencing “Critical Problems” in the first quarter of 2008 has increased substantially over the same period in 2007. 3309 companies faced ‘critical’ problems in the first quarter of 2008, over fourtimes as many businesses receiving serious actions and judgments across Great Britain, than the same period last year. Furthermore, almost 140,000 companies experienced ‘significant problems’, an increase of almost 20,000 on the same time last year.

The quarterly ‘Begbies Traynor Red Flag A!ert’ Statistics for the first quarter of 2008 monitors adverse actions and other corporate distress signals, such as the issue of county court judgements and winding-up petitions. Based on previous Begbies Traynor research, approximately 15 per cent of the companies experiencing the most difficult of circumstances and receiving large CCJs and/or Winding-up Petitions will enter into a formal insolvency procedure within 12 months.

Ric Traynor, Executive Chairman of Begbies Traynor Group, commented, “The combination of adverse economic conditions and tightening credit availability has clearly had a major impact on companies in the first quarter of 2008. This trend is expected to continue and will undoubtedly lead to more companies being pushed into insolvency over the coming months.”

The pattern of adverse actions received by companies normally falls significantly in the first quarter of the year, compared with the final quarter of the previous year, due to normal seasonality. Not so this year. Creditors seeking remedy against debtors in 2008 appear to be behaving very differently as they themselves are feeling the squeeze of current economic conditions. It is evident that businesses are taking sterner measures to recover debt than in previous, less restrictive times when credit control relied more on personal phone calls and letters and additional funding lines were available, even for troubled businesses.

Ric Traynor added, “Clearly the ‘Credit Crunch’ is beginning to bite and the decreasing availability of credit is being felt by the most fragile companies seeking to extend credit lines and/or refinance. The pressure is exacerbated by lenders having to tighten criteria still further and alter terms as they struggle to maintain margins.”

Regional highlights
The worst affected region identified by the ‘Begbies Traynor Red Flag A!ert’ Statistics is the South East with nearly five times the number of Critical Problems than were experienced in the first quarter of 2007. The North East suffered less but still experienced four times as many critical actions, compared to last year.

It is difficult to yet predict, however, how many of the companies most affected will fall into formal insolvency in the months ahead. Indications are, however, that insolvencies are already ahead of Q1 2007. Formal insolvency appointments for England and Wales, advertised in the London Gazette, are 19 per cent[1] up in the first quarter, compared to last year and the first two weeks of April show an increase of 35 per cent over the same period in 2007. The BERR (Department for Business, Enterprise and Regulatory Reform) statistics are due for release in early May, which should give more detail on these rising figures.

Regional analysis of Critical Problems

Region % average monthly increase
(Q1 ’08 over Q1 ’07) Total number of Companies with Critical Problems During Q1 ’08 Total number of Companies with Critical Problems During Q1 ’07
All Regions 358.3 3309 722
Scotland 355.0 91 20
North East 285.9 328 85
North West and North Wales 344.4 440 99
East Midlands 338.5 171 39
West Midlands 384.6 252 52
South East and East Anglia 388.9 1545 316
South West 334.2 482 111

Ric Traynor added, “There appears to be notable increases in the numbers of companies facing critical problems across the board, with the south most significantly affected. With increases nearing 400 per cent in some regions, the outlook for the coming year is certainly challenging.”

www.redflagalert.com

[1]Calculations exclude Members Voluntary Liquidation appointments.

Ric Traynor

About the author

Ric Traynor

Executive Chairman

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Ric qualified with Arthur Andersen in 1984 and founded Begbies Traynor in 1989. Ric specialises in practice management and has considerable experience in financial turnaround and dispute resolution within professional practices.

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Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland
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