Sharp rise in the number of struggling companies

Thousands of British companies are suffering from serious financial problems as the economy gears up for the full impact of the public spending cuts and tax rises, according to a report from the restructuring and administration firm Begbies Traynor.

Almost 148,000 companies were dealing with "significant" or "critical" financial problems over the final three months of 2010.

In a sign of the depth of the problem, the 3,018 companies that fell in to the more serious "critical" category were struggling with nearly £53bn in combined liabilities to creditors, suppliers and service providers, according to the report.

Begbies also found that trade creditors were increasingly inclined to take action against their debtors.

In annual terms, the number of distressed companies rose for the first times in seven quarters at the end of last year, climbing 4 per cent from 141, 527 in the final three months of 2009.

The figures are up some 20 per cent on the third quarter of last year when Begbies reported that 123,361 companies were experiencing financial problems.

"Today's figures show thatUK businesses are demonstrating real signs of distress and thattrade creditors are both losing patience with their debtors and in need for collecting cash into their own businesses," Ric Traynor, executive chairman of Begbies Traynor, said.

The data is published in the Begbies Traynor Red Flag report, a quarterly survey monitoring signs of company distress. Sector wise, the report shows a 17 per cent increase in struggling businesses in the retail sector, with the number rising to more than 10,000.

The wholesale sector registered the largest rise in distress, with the number of troubled companies rising by 30 per cent.

Mr Traynor said the figures underscored the increasingly tough outlook for British businesses ahead of the spending cuts.

"Coming against the backdrop of the largest decline in house prices for a year, higher inflation, an accelerated decline in business confidence, and [with] higher unemployed forecast for 2011, these figures indicate the renewed challenges facing businesses across most industries in 2011, particularly in the SME [small and medium sized enterprises] sector," he explained.