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Businesses facing 'critical' financial distress rise by 25% 20 January 2012

The number of businesses facing ‘critical’ levels of financial distress has risen by a quarter, according to the latest Begbies Traynor Red Flag Alert.

Companies in dire financial straits rose by 24% in Q4 2011 compared to the same period in 2010.

Among the worst-hit sectors were professional services – fuelled by a ‘prolonged downturn’ in the legal sector – and travel and tourism.

The report predicted the Olympic ‘displacement’ effect could result in the failure of at least one ‘household’ travel company during the forthcoming quarter.

Embattled retailers also recorded a 26% rise in financial distress with the survey picking out small and medium-sized retailers as the most in peril.

And it also warned the apparent resilience of the south east to the recession has faltered with a 33% increase in distressed businesses – with London reporting a 19% year-on-year rise.

Begbies executive chairman, Ric Traynor, said: “Escalating levels of distress indicate we may be getting close to the bottom of the economic cycle, where so called ‘zombie’ businesses, which are inherently insolvent, but have benefited from extensive support measures such as HMRC’s ‘Time to Pay’ scheme eventually fail.”

And Julie Palmer, partner at Begbies, added: “The travel and tourism industry was hit hard in 2011 and there appears no respite in sight.

“Ironically, the London Olympics are likely to have a considerable negative impact on parts of UK tourism with some of the capital’s West End theatres already having reported a 95% fall in bookings for the period of the Olympics, suggesting that ‘displacement’ is already having a serious effect on not only the travel but also the leisure and culture industries.”

The Midlands (52%), the East of England (41%) and the South West (32%) were the regions which fared the worst across the UK.

However, printing and packaging (-32%), sports and recreation (-16%) and food and drugs retailing (-16%) were among the few sectors that saw their health improve over the 12-month period.

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