Firms entering administration on increase as businesses struggle with inflation

The number of companies falling into administration has sped up so far this year, bouncing back from the lows seen during the pandemic when supports were in place for struggling businesses.

Research from Interpath Advisory, formerly part of auditing giant KPMG, found that 451 companies entered administration or receivership between January and June.

It’s a big jump from the 312 companies who did the same during the opening months of last year, but it is still well below the pre-pandemic levels.

In the first half of 2020, a total of 655 firms entered administration or receivership, and 686 in the opening of 2019.

“Inflation, both in terms of input costs and wages, is proving to be a particular challenge, as organisations tread that fine line of how much they can pass rising input costs on to customers, while wrestling with the conundrum of balancing pay rises against double-digit inflation,” said Blair Nimmo, chief executive of Interpath.

“With five consecutive interest rises over recent months, and undoubtedly more to come, plus fuel and energy costs continuing to rise, (it’s) no surprise that both consumers and businesses alike are thought to be preparing to batten down the hatches in the autumn.”

He said that there are signs that struggling companies are being issued with more winding-up petitions from those they owe money to.

Companies are spending the cash they built up over recent years, he said. Many were propped up during the pandemic by Government support schemes, including cheap loans.

“Anecdotally we are now starting to see two things. First, in certain circumstances, institutions are becoming more cautious in their approach to lending,” Mr Nimmo said.

“Should even a small number of lenders start to catch a cold, this will become problematic for businesses, as they burn through their cash reserves, and inflation continues to rise.

“Secondly, in recent weeks, we have seen instances of enforcement action being taken and winding-up petitions being issued.

“While it’s too early to say that this is becoming a trend, it’s certainly notable given the moratorium on enforcement that was in place during the pandemic.”

He said that Interpath is seeing signs that some businesses are recognising their problems early and coming to the adviser for help.