Experts Say UK Could Face Tidal Wave of Bankruptcies as Economy Falters

Financial advisors are foretelling of a coming situation where the number of companies closing in on bankruptcies and in need of emergency financing could reach record levels – up to twenty times the number of companies in similar circumstances today. As banks clamp down on lending and interest raise drift ever upwards, liquid capital is becoming far more difficult for companies to gain access to.

While banks are currently handling companies in a delicate way to preserve their image as resources of the public, things could change drastically in the coming months. While interest rates may be at record lows now, any change, even small changes over time, could push companies into more dangerous waters where costs can quickly spiral out of control. The cheap money available for the last few months has encouraged companies in trouble to borrow while rates are low against fears of an inevitable rise in interest rates. If they fail to handle this debt extremely well, once interest rates begin their ascent, this costs will shoot up, making the debt much more difficult for the company to manage.

Experts insist that if the Bank of England is not careful about when it raises interest rates, it could upset the fragile economic growth that is now starting to take hold. While smaller businesses may well flourish in the current environment, some analysts put the number of companies worth between £10 to £200 million and owned by UK banks, at two to two and half thousand. Those companies all have more debt than they could be liquidated for.

Plenty of investors will be flocking to these underfunded, debt-laden companies in an effort to purchase what are known as turnaround companies. These are companies that might be near the grave, financially speaking, but with the right investments and some re-structuring, often return to profitable, sound companies.

Some investors hold Britain’s economy itself to be worthy of the turnaround status, viewing the nation’s economy as under extremely poor financial management and in need of a new team to turn things back around.