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Almost 17,000 Welsh Companies in Significant Financial Distress as Rising Costs Hit Recovery

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Almost 17,000 Welsh businesses found themselves in ‘significant’ financial distress during the second quarter of 2022 (April-June), according to the latest figures from Begbies Traynor’s “Red Flag Alert”, which monitors the financial health of British companies.

Wales saw the number of businesses struggling between Q1 and Q2 2022 hold steady at 16,818, albeit this is 13% lower than the same period in 2021.

That said, there were increases in levels of ‘significant’ financial distress in the two largest cities in South Wales and certain sectors. Swansea saw a two percent quarterly rise, with the construction sector registering a 10 percent increase in struggling businesses between Q1 and Q2 2022.  In Cardiff, financial distress among retailers and bars & restaurants was up by four percent.

When looking at the sector picture across Wales, the industrial sector experienced the biggest quarterly increase with the number of companies in difficulty up by six percent. This was followed by bars and restaurants, which were up by two per cent.

Across the UK, the latest Red Flag Alert research for Q2 2022 recorded 582,452 businesses in significant distress with companies continuing to be impacted by rising inflation, higher labour, material, fuel and energy prices, and faltering consumer and business confidence.

Evidence of this financial distress comes in the form of County Court Judgement (CCJ) data, arguably an early warning sign of future insolvency, which revealed 46,235 rulings in the first six months of 2022, up 5% on the first quarter, as creditors tried to recover debts. This compares with 59,042 CCJs during the entirety of 2021, with this year’s figure to date driven higher as the backlog in the courts clears and debts are pursued.

Commenting on the figures, Huw Powell, managing partner at Begbies Traynor in South Wales, says:

“Having emerged from the pandemic, companies in Wales were hoping for an economic boom but that has simply fizzled out, as a combination of economic issues have taken their toll, reducing both business and consumer confidence.

“Indeed, rising insolvency rates, combined with our own anecdotal evidence from speaking to the directors of distressed companies, highlight the impact of rising costs on businesses.

“Many distressed businesses are fighting on, but with no end in sight for the war in Ukraine, energy prices and interest rates forecast to rise further still, and now political uncertainty in Westminster it seems inevitable that the environment is only going to get worse, not better, at least until next year. I fear that it will be a troublesome autumn as businesses which have struggled for so long may finally become overwhelmed, particularly if the forbearance that has been shown by lenders and other major creditors begins to wane.

“That is why it is so important that any businesses facing financial difficulties, for whatever reason, should seek professional advice in order to fully understand the options available.”