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UK company failures predicted to surpass 2009 peak

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Corporate insolvencies are set to peak at a higher level than the last financial crisis as companies struggle with inflation and falling demand, according to restructuring executives.

Company failures have already risen this year after government pandemic support ended, and corporate recovery specialists Begbies Traynor and FRP Advisory said on Tuesday that they expected further distress.

Ric Traynor, executive chair of Begbies Traynor, said the number of company failures could exceed the last peak in 2009. He said that unlike then, interest rates were now rising and making it more expensive for struggling companies to survive the recession.

Traynor said the biggest problems would occur for the “usual suspects” of companies in industries serving the British consumer, given expectations that spending would fall sharply next year.

FRP Advisory chief executive Geoff Rowley said that much of the pressure on companies was coming from their investors, who were increasingly unwilling to support start-ups, for example, that showed no signs of breaking even after years of investment.

“It’s often investors saying ‘no more’ rather than the traditional high street banks,” he said, pointing to the high number of “tech-related” businesses in distress. “We see debt issues manifesting in 2023 and beyond as refinancing comes up. We are starting to see real challenges out there.”

Traynor and Rowley predicted that the insolvencies would be worsened by the unwinding of government pandemic support, with loans made by banks under various state-backed schemes coming due for repayment next year.

“It’s been well spent and we are now finding out who can repay and who can’t,” said Traynor.

Reporting results on Tuesday, both companies said they were positioned to increase earnings as a weakening UK economy boosted demand for their services.

FRP said revenue increased 10 per cent to £49.4mn in the first half of its financial year, and that it was “well positioned” to benefit from the “many challenges” faced by UK companies struggling with debt in a slowing economy. Pre-tax profit declined slightly to £5.4mn, from £5.7mn in the same period last year.

“Uncertainties persist over how long the available liquidity and government-backed loans can sustain troubled businesses and how proactive key creditors like HMRC and institutional lenders will be on addressing overdue debts,” it said.

Traynor expected continued growth from business recovery and financial advisory, given its increased order book, the higher level of inquiries and the increasing economic headwinds.

The company reported that pre-tax profit in the six months to October almost doubled from £2.7mn to £5mn, while revenues increased from £52.3mn to £58.5mn.

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