Roughly 12% of firms in the North East, Yorkshire and Humberside are experiencing at least one of four specific measures of distress relating to the capital they had readily available, the research research by insolvency trade body, R3 found.
The companies reported they were collectively negotiating payment terms with creditors, just paying off the interest on their debts rather than the debts themselves, struggling to pay their debts when they fell due or were in a position where just a small increase in interest rates would leave them unable to meet their obligations to creditors.
Across the UK as a whole, around 134,000 businesses – 24,000 more than last year – said they were struggling to pay their debts when they fell due, leaving them at risk of insolvency.
Although the overall number of ‘zombie businesses’ – those that can only pay the interest on their debts – has fallen from 146,000 last year to 108,000, Steve Ross, chairman of R3’s North East branch, believes the situation could spell bad news for some in the near future.
“Businesses struggling to pay debts when they fall due are clearly in a very perilous position and while they have yet to enter formal insolvency procedures, those with such serious cash-flow problems may find that the day of reckoning is not too far off,” said Ross, who is also a partner in the restructuring department of RSM Tenon’s Sunderland office.
“A fall in the number of zombie businesses in the UK should be welcomed, but the recent decline we have seen is not necessarily because businesses that have been in this position are showing signs of improvement. With the economy recovering, it could be crunch time for struggling businesses as lenders start to make their minds up about which businesses to continue to support and which businesses to call time on.
“Not all struggling businesses are doomed to failure, but the prolonged period of low interest rates and Government support schemes has made it hard to distinguish between businesses that are struggling but viable and those businesses that do not have a future.
“Company managers who find themselves facing stubborn, long-term cash-flow or debt problems need to take decisive action to address and resolve their situations sooner rather than later, so they have the best possible chance of working through their difficulties and improving their company’s long-term prospects for renewed success.”
Businesses struggling to pay debts when they fall due are clearly in a very perilous position