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Is the risk of insolvency increasing?

This morning (31 October) the BBC reported, “The number of firms in “Critical financial distress” jumped by 25% in the last three months.”  Indeed, the number of companies falling under this description was almost 38,000 and is based upon a report that county court judgments (“CCJ”) exceeding £5,000 have increased significantly.

Firstly, some perspective.  There are over 5 million businesses registered in the United Kingdom.  However, that is small consolation if you are one of the 38,000 (or close to becoming one of that number).

A CCJ can be damaging to a business as it effects credit ratings, can impact on the ability to obtain supplies and, sometimes, can be a precursor to corporate failure.  However, you may get a CCJ for several reasons, including:

  • You have lost a legal claim, so judgment was made against you; or
  • There had been an innocent oversight; or
  • You have cash flow issues where you are unable to pay debts as they fall due.

Losing a legal claim can have obvious and direct consequences that may even result in the demise of your business.  However, cash flow issues can be something that creeps up on a business – sales may take a slight dip, that invoice you were expecting to be paid is delayed, or simply not paid at all.  A common issue we are seeing frequently is costs of materials have increased, resulting in a reduced profit margin on a job you are contractually bound to complete.  In business, you can be so focussed in doing the business that you take an eye off the business itself and these operational issues do not get recognised as early as they might.

Just because a company is struggling, it does not automatically mean failure.  As PBC have demonstrated time and again, taking early advice has enabled us to consider the options available and it enhances the prospect of turning your fortunes around.  It should be said that it is rarely too late to take advice.  However, the longer you leave it until you do, generally narrows the options available.

If you require any advice or assistance on any insolvency-related issue, then please contact PBC Business Recovery & Insolvency on 01604 212150 (Northampton), 01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.