HMRC debt-chasing as thousands of property firms hit ...

Despite the roaring housing market, a new report says that no fewer than 70,500 real estate and property businesses are showing ‘significant financial distress’.

The construction industry - which is separately classified - is faring even worse with around 72,500 businesses in the same predicament.

The figures relate to the third quarter of this year and comes from specialist insolvency consultancy Begbies Traynor, which monitors the financial health of UK businesses.

Across all sectors it has recorded 562,550 businesses in 'significant financial distress' with a 139 per cent uplift in County Court Judgments in the past year.

However, despite this gloomy total, the overall number of businesses in significant financial distress has fallen 14 per cent since earlier this year.

Begbies Traynor says County Court Judgements are often a bellweather for future insolvency.

Official data shows there were 9,101 CCJs lodged against companies during Q3 2020, rising to 21,769 during Q3 2021, a 139 per cent uplift.

This acceleration in CCJ's was also evident between Q2 and Q3 2021 with a 51 per cent increase.

The latest official figures show that court activity is picking up as creditors, become more aggressive in chasing debts.

Top 10 Distressed Sectors

1. Support Services - 87,694

2. Construction - 72,465

3. Real Estate & Property - 70,552

4. Professional Services - 39,095

5. Telecoms - 36,307

6. General Retailers - 35,107

7. Health & Education - 31,810

8. Media - 23,499

9. Bars & Restaurants - 20,552

10. Manufacturing - 20,269

Distressed Companies by Region

1. London - 149,784

2. South East - 101,690

3. Midlands - 66,527

4. North West - 54,350

5. South West - 39,870

6. East of England - 38,829

7. Yorkshire - 32,995

8. Scotland - 28,615

9. Wales - 16,769

10. North East - 10,974

11. Northern Ireland - 8,095

Julie Palmer, a partner at Begbies Traynor, says: "The UK economy - which remains one large recession short of its pre-COVID trajectory⁴ - is quickly recovering. However, it may prove to be transitory as rising CCJ figures are a cause for real concern.

"Despite the summer economic boom, systematic problems remain, and some businesses are encountering difficulties in paying back government COVID loans. However, Inflation, energy costs and labour availability are risk factors for many of these businesses, particularly if they are unable to pass these costs on to their customers.

"Whilst many businesses have returned to a sense of normality, history suggests that high levels of debts and subsequent overtrading could eventually take their toll on these businesses."

And Ric Traynor, executive chairman of the insolvency consultancy, adds: “More worrying has been the 44 per cent rise in small business defaults for loans to corporations as published in the Bank of England's latest credit conditions survey. This trend is backed up by our own empirical evidence.

“Every week as a business we have hundreds of conversations with distressed businesses and their advisers, and three clear trends are now emerging. Firstly, there is real concern amongst many SME directors about their ability to pay back government backed bounce back loans with many directors exploring short to medium term insolvency options.

“Secondly many directors say that HMRC is taking an increasingly aggressive line in chasing debts, particularly those who have defaulted on time to pay arrangements and thirdly many businesses are coming under considerable pressure from landlords chasing debts.

"These risks combined with the withdrawal of government support measures and protection will undoubtedly see an acceleration in insolvency rates into 2022.”