Number of companies on 'critical' list rises rapidly

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The dire situation facing many UK companies has been laid bare, with a survey finding that 12 per cent more businesses are on the verge of insolvency than just three months ago.

The survey, by Begbies Traynor, the restructuring specialist, found that a total of 5,179 companies faced "critical" financial problems in the second quarter of the year.

The company's Red Flag Alert Report revealed that number had risen from 4,620 in the first quarter and now represented liabilities of almost £60bn, as factors including dwindling consumer spending took their toll.

Companies described as having "critical" problems face wind-up petitions or county court judgements of £5,000 or more. Those with "significant" problems face either court action or poor, insolvent or out-of-date accounts.

The worst affected sector was hotels and accommodation, which experienced an almost 50 per cent rise in companies facing "critical" financial issues than a year earlier, according to the report.

There were also almost a third more travel and tourism companies in trouble, while those in general retailing were up 17 per cent.

"A significant proportion of the population are being squeezed by inflationary pressures and concerns over the security of their employment and are therefore being extremely cautious with their spending," Begbies said.

The Red Flag report posted some seemingly good news that there had been a 48 per cent quarter-on-quarter fall in the number of companies facing "significant" financial problems.

But Begbies pointed out that some of this came from groups moving to "critical" status and that the numbers were skewed by seasonal factors.

Many companies faced "significant" problems in the first three months of the year because of the number of overdue accounts due to be filed by 31 December.

The report also revealed that the number seen as having "significant" problems was more or less unchanged from a year earlier.