Corporate distress on the rise: UK sees 10% increase in the past year – London Business News | Londonlovesbusiness.com

The Institute for Turnaround (The IFT) has released its fifth Societal Impact report, surveying its members and highlighting that UK corporate distress shows no signs of easing, despite some return to economic stability.

This year, the number of distressed businesses across UK regions has risen by nearly 10% on average, representing a staggering 60% increase since 2017.

Despite the challenges, IFT members have delivered significant positive outcomes for UK businesses in 2024, directly contributing to the greater resilience of UK plc. Key findings are:

• £3.1 billion in added shareholder value generated by independent members.
• 56,000 jobs were safeguarded, enabled by independent turnaround expertise, a slight increase over the previous year.
• Over 80% of IFT members report activity levels comparable to or busier than in 2023.
• Nearly four-fifths (78%) of members expect further growth in turnaround activity in 2025.

Looking at service hotspots, the majority (61%) of IFT members continue to focus on business transformation as a key area of their work, supporting businesses to adapt, transform and succeed in the longer term.

Despite a decline in insolvency rates since 2023, distress remains pervasive, with nearly half (46%) of IFT members forecasting an increase in company failures due to the current operating environment. Key challenges contributing to this outlook include servicing high levels of debt, the depletion of working capital and difficulties accessing further funding.

IFT members consider that the biggest challenges for distressed but viable companies in the coming months will be internal ones, such as board bandwidth or fatigue (40%) and the depletion of working capital (37%).

When asked why businesses in distress fail to seek support at an early stage, 81% continue to cite cultural and psychological resistance to external advice as the primary barrier. This was closely followed by a lack of awareness of difficulties (62%) and understanding regarding the turnaround process.

Other findings from the annual report include:

• All areas of the UK saw an increase in the number of distressed companies (ranging from between 7% and 17%).
• Companies in the Wales & Borders region have seen the biggest jump in corporate distress, rising 17% year-on-year, followed by the Isle of Man and the South-West of England
• London overtook the South East to become the leading region for insolvencies, with 3,295 company insolvencies Q1-Q3 2024.
• The top three sectors for both distress and insolvencies remained wholesale, retail and repairs, construction, and professional, scientific and technical activities, with construction seeing the highest number of insolvencies.
• Manufacturing remains the dominant sector for IFT members, followed by construction. The automotive sector has also risen in turnaround activity rankings for IFT independent members, moving from ninth to third place, as regulatory changes have pressured the industry.

Milly Camley, CEO at The IFT said, “These are the very businesses that could benefit from the UK’s breadth and depth of turnaround support and expertise, but the reality continues to be that many do not take advantage of such support or may seek support simply too late.

“The most important step in fixing a problem is to work out what you can control – or, at least influence. Even in the face of the cumulative external factors facing UK businesses, there are many things that leadership teams can address with one rider: they must act early enough.

“This is where turnaround professionals come in. The value that such support can provide is huge, as demonstrated by the figures outlined in this report.”

Claire Burden, Chair at The IFT added, “Ultimately, challenges will persist and we need to look at the automotive sector as an example of how quickly difficulties can rise to the surface. British businesses must prioritise planning, particularly when it comes to liquidity and financing.

“Engaging early enables business leaders to address issues before they become critical, whether that involves renegotiating contracts, adjusting working capital strategies, or seeking external financing.”