Businesses in East Anglia are bucking national trends and seeing significantly fewer signs of distress, according to insolvency trade body R3.
R3’s quarterly business distress index shows that the number of businesses in the region admitting to regularly using their maximum overdraft facility has fallen to 11 per cent from 39 per cent six months ago. Meanwhile, the number of business in East Anglia and the East Midlands seeing reduced sales volumes has fallen to 29 per cent from 62 per cent. Some 27 per cent say are experiencing decreased profits, compared to 40 per cent six months ago.
The number of zombie businesses in the region - able to pay the interest on their debts but not reduce them - has fallen from around 55,000 to 18,300.
The national picture is less promising. R3’s report shows that a third of British businesses are currently seeing decreased profits, whilst one in five are regularly using their maximum overdraft facility and nearly a third have seen a reduction in sales volume.
R3 eastern region chairman Shay Lettice, a partner at Peters Elworthy & Moore. said: “Whilst many local businesses appear to be starting to cope with recent economic challenges, the danger for such businesses is the stagnation of the national economy, upon which so many are reliant.”
“A healthy regional economy requires national activity at both ends of the economic cycle – it needs business growth and expansion, as well as the recycling of capital following business failure. Unfortunately, the national picture shows there has been little improvement to those businesses that are consistently reporting distressed signs.
“There are a significant number of businesses being kept alive by the forbearance of banks, other key creditors and favourable interest rates, which is enabling them to stay afloat but make no in-roads on their debt. However, they are in a precarious situation with little prospect of growth. Any change in circumstance, such as a loss of a major customer or increased creditor pressure could easily push them into insolvency.”
On a more positive note, R3’s latest research shows a sizeable number of regional and national businesses are relatively stable, with nearly half of businesses reporting no distress signs at all.
Shay Lettice continued: “It is encouraging that around half of businesses are not in a distressed situation, which is a considerable improvement on the figures two years ago. However, what is of most concern is the undertakings that have existed in a distressed situation for some time and are likely to have reported distress signs throughout the year.
“The fate of these businesses will have a major impact on the UK economy. If creditors become more rigorous in their pursuit of debts, there is likely to be a sharp rise in business failure. This may clear the ground for a quicker return to growth and free up capital for other, more viable, businesses. However if major creditors continue forbearance, we could see a continuous period of low growth.”
