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Administrations up once more 1 July 2013

The volume of companies going into administration and the number of individuals seeking low cost bankruptcy arrangements with lenders has risen sharply during the second quarter of 2013.

Research from FRP Advisory found that company administrations in April and May totalled 378 across England and Wales, a rise of 56, up 20%, compared with January and February.

The current monthly run rate indicates that the whole of the second quarter is likely to show a similar sharp rise in administrations of around 15% over the first quarter 2013 according to FRP Advisory, the restructuring firm.

Glyn Mummery, partner at FRP Advisory, the restructuring firm, said: “Zombie companies seem to be realising that they are in fact dead. There is evidence that zombie companies are addressing their stressed balance sheets and using administration as a radical tool to position their business model to benefit from the recovering economy.

“This past week’s flurry of high profile retail administrations is indicative of a trend that began last autumn, to trim the fat – the over shopped high street presence – from what for many remains still a profitable core retail model, but one which often simply needs to move more online.”

While company administrations in Q1 peaked during March at 227, the current monthly run rate since the start of Q2 indicates that company administrations in June will be at least as numerous as March and likely to continue the peak reached in March.

This research suggests that since the start of 2013 management, in particular at retailers are taking a more proactive approach to dealing with under-performing businesses, often seeking administration to try as a last resort to rescue the core part of a business.

Mummery said that a rise in administrations after a recessionary period normally points to a recovery being round the corner.

He added: “Companies that survive through a recession, but remain operationally and financially under stress, work on paper thin margins but cannot invest in stock.

“When an economy or a market picks up, stressed businesses often then fail as there is insufficient working capital to meet demand and such firms are often unable to raise further finance as the balance sheet is already stretched and lenders may prefer to lend more to the stronger, or the Phoenixes that emerge from administration.”

 

 

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