What directors need to know
The overall number was slightly lower than January’s total but one underlying trend caught our eye and that was the rise in the number of administrations recorded – 116.
This total is 65% higher than the previous month’s total of 71 and is 95% higher than the same period a year ago.
It’s the highest number of administrations seen in a monthly period since December 2020 and an indication that more businesses are looking at restructuring and recovery as a viable alternative to outright liquidation.
Taking 2019 as a wholly pre-pandemic year, the demand for administration was still strong in 2020 despite three quarters of it being under lockdown and with support measures for businesses including the furlough scheme, grants, loans including bounce back loans and restrictions on creditor actions such as winding up petitions being put in place that could otherwise have forced more companies to decide to choose to go into administration or another insolvency procedure.
This had a suppressing effect for 2021 as a whole but the strong response at the start of 2022 means there have already been 24% as many administrations this year as in the whole of the previous 12 months.
Christina Fitzgerald, Deputy Vice President of R3, the insolvency and restructuring trade body, has also noticed this rise and thinks it could be significant.
She said: “While there has been a reduction in some types of insolvency processes, administrations have increased to a 15 month high.
“This increase suggests that there are a number of insolvent businesses which have some prospect for rescue, given this is one of the main statutory purposes of the administration process.
“Whenever possible the insolvency profession will work to secure the rescue of businesses in administration to help ensure better outcomes for the business, its staff and creditors.”
What is administration and how can it help a business survive financial turbulence
It’s a formal insolvency process which sees the directors or shareholders of a business appoint an external administrator to run their company to see if it can be restructured and ultimately rescued.
It has many advantages.
Firstly, all legal action against a company is halted when it goes into administration.
This allows the administrator (who has to be a qualified insolvency practitioner) the time to put together a detailed recovery plan which allows the business to keep trading while looking at areas where savings can be made to protect the business.
They will also consider other alternatives for the business to recover such as a company voluntary arrangement (CVA) or whatever will be in the best interests of the company’s creditors.
A trading company with a chance of returning to profit will always be better placed to provide a greater return to creditors than a liquidated one could.
Many businesses have emerged from administration leaner, stronger and ultimately more profitable as a result either under their previous management or some are sold on to new leadership and investors with new ideas and energy.
Administration is just one of the many tools available to businesses if they’re facing an uncertain future
The best step for any company in this position would be to get in touch with us to arrange a free consultation with one of our expert advisors.
They can provide unbiased and clear advice based on the unique circumstances facing each business and suggest what solutions would be the most appropriate and easiest to implement.
We can help implement any of these you’d like to pursue but the first step has to be yours to take.