Tuesday, August 16, 2022

Administrations fall to historic low across the Midlands

The number of companies going into administration fell to historic lows during 2020, as the array of government COVID-19 support measures continue to provide a lifeline for those businesses who have been adversely affected by the pandemic.

Analysis of notices in The Gazette by KPMG’s Restructuring practice showed that across the Midlands, 137 companies went into administration over the course of 2020, a drop of 21% compared to the 173 administration appointments in 2019. This was particularly pronounced in H2, which saw a decrease in appointments of 38%.

Building and Construction was the hardest hit sector in the region, with 27 appointments during 2020, followed by Business Services and Retail, both of which have been particularly hard hit due to the reduced workforce in offices in city centres.

There was a similar picture nationally, with 1,112 administration appointments over the course of 2020 – this is the lowest annual total since KPMG started tracking the data in 2005, and a fall of 22% on 2019, which saw 1,425 administrations.

Chris Pole, Partner and Head of Restructuring for KPMG in the Midlands, said: “The breadth and depth of support measures available, coupled with a supportive lending community, have given organisations a vital lifeline. As a result, we have seen fewer insolvencies than expected from what will have been one of the most challenging years businesses have ever experienced.

“It is clear however that the low insolvency figures are simply masking the financial health of many businesses. Much of the support provided has resulted in businesses taking on additional liabilities.

“At some point, the rent, tax deferrals and loans will need to be repaid, and the Job Retention Scheme will unwind. Life without these support schemes, particularly for businesses which need to rebuild their working capital, is going to be a significant challenge, especially when the additional repayments are taken into account.”

While the pandemic and resulting lockdown measures continue to have ramifications for many businesses, the impact of the UK’s new deal with the European Union agreed at the end of 2020 will also currently be a key consideration for business owners.

Chris Pole explains: “There was a sense of relief for businesses when the Brexit deal was signed over Christmas, averting a cliff-edge scenario. But our trading relationship with Europe has changed and this will no doubt result in operational and financial issues both immediately and in the future for some businesses within the Midlands.

“There has already been supply chain disruption, particularly around new customs processes at the ports, with increased paperwork and delays impacting both suppliers and those awaiting deliveries. This will result in some companies having the issue of cash tied up in stock, unable to be despatched to consumers, but with bills still to be paid and no immediate solution.”

Looking ahead into the outlook for businesses across the Midlands in 2021, Chris Pole concluded: “2020 was a story of survival, which was helped by businesses being able to take advantage of the Government support measures which were introduced at the start of the pandemic. The key challenge this year for businesses will be to restore customer confidence and consumer demand and to ensure sufficient working capital is in place to fund the restart.

“The pandemic has highlighted both the difficulty in, and importance of, creating prudent cash and working capital forecasts. It is imperative that directors consider a range of scenarios and ensure plans are in place, which can be implemented at short notice, if conditions go against them.

“Whether good or bad, having planned for the scenario which they ultimately end up in, knowing the impact on the financial performance, the liquidity and funding requirements, will provide directors and their stakeholder base with the confidence and reassurance that they will need as the economy slowly reopens.”

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