New report finds 24% increase in companies facing insolvency

Thursday, 19 January 2012 04:55

A new report highlights the difficulties facing the retail sector as the number of in “critical” financial distress increased sharply in the final quarter of 2011.

Financial services company Begbies Traynor found a 24 per cent year-on-year increase in the number of companies facing insolvency, court action for debts or winding-up petitions. Its ‘Red Flag Alert’ report, published today, says the economic outlook is poor across every region and sector of the economy.

The sector of the economy that appears to be suffering most is professional services which reported an increase in financial distress of 61 per cent compared to last year. This was followed by the travel and tourism sector where problems increased by 56 per cent.

The news comes as two companies face major uncertainty. Discount clothing chain, Peacocks failed to persuade state-owned bank Royal Bank of Scotland (RBS) to invest and has just announced that it will make 249 staff redundant, according to the new administrators for Peacock’s, KPMG.

Reports today also indicate that toddler’s chain, Pumpkin Patch, is also in danger of going bankrupt.

The run-up to Christmas saw fierce discounting and competition as stores tried to win their share of the Christmas spend, but often at the expense of profit margins. The report warns that competition from online retailers mean that small and medium-sized businesses face an even tougher retail climate in the months ahead.

The report indicates that the final quarter of 2011 could see the economy contract when the first estimate of GDP for the fourth quarter is released next week by the Office for National Statistics (ONS).

The Chancellor, George Osborne has already indicated that he believes this could be the case.

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