10,000 businesses now showing signs of early financial distress

This 40% increase compared with the same period the previous year comes as the country faces a strict lockdown which is likely to remain in place until at least February.

The latest data, published by leading business rescue and recovery specialist, Begbies Traynor, shows that the year on year rise in ‘significant’ distress in Northern Ireland was reflected across the rest of the UK. This type of distress, which indicates early signs of financial problems, rose by 27% across the UK as a whole in Q4 2020 compared with Q4 2019, affecting a total of 630,000 firms.

Businesses in the province also saw a deteriorating picture quarter on quarter with a 15% rise in those seeing ‘significant’ distress since Q3 2020, slightly above the UK wide figure of a 13% increase.

In contrast, Northern Ireland experienced a 41% fall in businesses experiencing ‘critical’ distress (which refers to businesses that have had winding up petitions or CCJs totalling more than £5,000 against them) by the end of Q4 2020 compared with the same period the previous year. There was also a 44% fall in these advanced signs of distress in the province quarter on quarter.

However, it is likely that these figures are the tip of a very large iceberg. The coronavirus pandemic has reduced court activity limiting the number of decrees and winding up petitions being issued against indebted companies and there has been a ban on winding up petitions for Covid-related debts.

Lawrence O’Hara, who leads Begbies Traynor in Northern Ireland, said: “It is extremely worrying to see such a huge rise in signs of early distress with so many companies in Northern Ireland struggling in the face of a continued fall-off in trade after nine months of almost constant Covid restrictions. While instances of more advanced signs of distress have actually fallen, this is probably due to the Government’s insolvency prevention measures which, together with pandemic-related financial aid, are masking the true picture. We fear that the latest research indicates escalating distress with more economic problems being stored up for further down the line, once these support measures are withdrawn.”

Every one of the 22 sectors in Northern Ireland monitored by the Red Flag Alert research experienced double digit increases in ‘significant’ distress in the final quarter of 2020 compared with the last quarter of the previous year - a worrying sign for the province’s economy as the financial situation worsened for many companies.

Northern Ireland’s printing and packaging sector was particularly badly hit with a 116% year on year increase in ‘significant’ distress; while automotive saw a 68% rise.

Despite the booming residential property market, the whole real estate and property sector – a key indicator of the economy’s performance – has seen significant distress rise by 40% in the last quarter compared to the same period last year. Northern Ireland’s construction businesses have also seen an impact, despite activity being able to continue during lockdowns, with a 44% increase in early signs of distress year on year.

With government restrictions forcing thousands of hospitality businesses to close or limit their operations, hotels have been one of the hardest hit sectors by Covid-19. Northern Ireland’s hotels saw a 55% rise in early distress the last quarter compared with Q4 2020. However, these numbers are likely to be understated due to the short-term financial support options available which will be keeping thousands on artificial life support. Lawrence O’Hara added: “While these figures give an insight into some of the financial stresses that have been building in Northern Ireland’s businesses, the sad truth is that, for many companies, the Government’s extended furlough and financial support measures will provide little more than a stay of execution as debt levels become unmanageable and structural changes across many sectors take their toll.”

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