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Administrations failing in two thirds of cases 7 November 2016

Two thirds of businesses going into administration fail, according to research by Opus Restructuring and Company Watch.

Research by Opus Restructuring, the restructuring and insolvency firm, reveals that administration, the UK’s flagship business rescue procedure, is ineffective in over two thirds of cases.

Using data and analytics supplied by Company Watch, a financial analytics company, Opus reviewed the outcomes of 4,581 administrations in England and Wales, which started in the past five years.

Almost 2,000 of the administrations remain in progress.

Out of the 2,607 administrations completed, 2,344 (90 percent) of the firms were liquidated or dissolved without going through a liquidation.

High profile failures have included the likes of Comet, Blockbuster and La Senza.

In just 263 (10 percent) of cases, the company exited administration and remains active. These companies tend to be focussed in the hotel and property development sectors.

Some 75 of the surviving firms used a company voluntary arrangement (CVA) successfully as the exit route. A significant number of these are football clubs, such as Portsmouth, Hearts and Dunfermline Athletic.

Opus and Company Watch said it is likely that up to 513 of the administrations ending in liquidation or dissolution may have involved the rescue and long-term survival of the business through a pre-pack sale, or a sale following a trading administration period.

If these are added to the known successes, Opus added, the total number of positive outcomes rises to 776 and the success rate for administrations from 10 percent to 30 percent.

The research also confirmed that a high number of administrations last longer than the one-year period contemplated by the relevant insolvency legislation.

Out of the 1,960 companies still in administration, 757 (39 percent) had been in the process for more than a year and 301 (15 percent) had been in administration for more than two years.

Property companies feature heavily among these, as well as highly complex financial services businesses, such as MF Global and the failed international law firm, Dewey & Leboeuf.

Nick Hood, business risk adviser at Opus Restructuring, said: “Opus research shows that, at best, around only 30 percent of business rescue attempts through the administration process are successful.

“It’s a disappointing result, which reflects the endemic ostrich-like behaviour of struggling entrepreneurs who wait far too long before admitting they have problems. “

Denis Baker, chief executive of Company Watch, said: “An administration success rate of only 30 percent and a miniscule return for unsecured creditors of just 7p in the pound highlights just how important it is for credit managers to constantly monitor and manage customer risk.

“The earlier a client or key supplier suffering financial distress is identified, the more chance they have of acting to prevent damage to their business.”

 

 

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