Business Recovery & Reconstruction E-alert - News & Views from The Bridge
Recent research shows that there has been a 10% decrease year-on-year in the number of administration appointments since 2014, a trend which appears to be continuing during 2016.
A popular view is that this decline is an indicator of the improving financial health of the economy. Personally, I do not think this is the case and have outlined in this blog why.
The historical data
There were 1,456 administration appointments in 2015, down by 152 from 2014. This downward trend is also evident when looking just at Q1 statistics for the past three years, shown in the graph below.
During 2015 the industry with the most appointments was construction and industrials and the industry with the second most appointments was travel and leisure. This will not come as a surprise to many.
What does this mean?
The decline in administration appointments may be due to:
On the positive side:
- Rescue techniques not involving administration
- Willingness by stakeholders to work with distressed companies to avoid a formal insolvency process.
On the negative side:
- Delays, meaning administration is no longer a viable tool
- Creditors taking enforcement action such as receivership.
And from a neutral point of view:
- This could be because of the introduction of the pre-pack pool (the independent body who provide an opinion on the purchase of a business and/or its assets by connected parties to a company where a pre-package sale is proposed). Click here to see a blog I previously wrote about the pre-pack pool.
- Debtors seem to be able to obtain funding more easily - This funding is from private investors rather than mainstream lenders and is used to enable debtors to either trade out of the insolvency or to prop up the company for longer.
- Creditors are becoming increasingly willing to swap their debt for equity
- Secured creditors have become increasingly conscious of the cost and there seems to be an increase in the appointment of fixed charge receivers
- Directors seem to wait too long before approaching an insolvency advisor - This therefore can often mean that administration is not a viable tool.
- An increase in pre-liquidation sales - With the introduction of the pre-pack pool it is possible that connected parties who wish to acquire the business and/or assets do so before the company is placed into liquidation, which could explain the decline in the appointments of administrators.
There are many possible reasons as to why there has been a decline in appointments, but my view is that the main reason is because directors leave it too long before approaching professionals and this limits the restructuring options available to them. I do also believe that the introduction of the pre pack pool has also reduced the number of administrations.
We would be very interested to hear of any of your experiences. Please do get in touch with our Business Recovery & Reconstruction team if there is anything that you would like to discuss.