Number of company administrations in South West jumps by more than 50 per cent
The number of companies filing for administration across the South West increased by more than half in 2022, according the latest figures.
Analysis of notices in The Gazette by Interpath Advisory found that a total of 100 companies based in the South West fell into administration in 2022 – up from 64 companies in 2021.
This represents a 56 per cent increase on last year, but nevertheless is still well below pre-pandemic levels. There were 166 in 2019 173 in the previous year.
The figures mirror the UK picture which saw a total of 1,039 companies fall into administration in 2022 – up from 710 companies in 2021
The national situation is also not yet back at pre-pandemic levels of 1,422 in 2019 and 1,337 in 2018.
Lee Swinerd, director and head of Interpath’s Bristol team, said: “2022 came as a body blow for many businesses who had been hoping for a year of respite following two years’ of disruption caused by the pandemic.
“Instead, spiralling inflation, rising interest rates, faltering consumer confidence, political turbulence and weaker cross-border trade served to pile on even more pressure.”
“And despite new figures released by the Office for National Statistics confirming that the UK economy grew by 0.1 per cent in November, the longer-term outlook remains highly uncertain and rather gloomy.”
The rising number of UK insolvencies can be seen across a wide range of sectors, with retail and casual dining businesses experiencing particular challenges as the year drew to a close.
Across the UK, in 2022, there were 96 per cent more filings for insolvency (100 appointments) in the retail sector in comparison to 2021, and 67 per cent more filings (70 appointments) in the leisure & hospitality sector.
The pandemic and broader economic challenges have made the last few years a particularly tough period for the UK retail and hospitality industries, with a number of high profile appointments in recent months such as Joules, AMT Coffee, and Byron Burger.
And while retailers benefited from an increase in sales in the pivotal month of December (rising by 6.9 per cent compared with a year earlier), the British Retail Consortium attributes much of this rise to high inflation pushing up the value of goods being sold, masking weaker sales volumes.
Lee Swinerd added: “Businesses in the retail and casual dining space continue to face one challenge after another – from rising input costs and interest rate rises, to supply chain disruption and staff shortages, not forgetting falling consumer spend due to the spiralling cost of living.
“Many are also finding that they have surplus stock on their hands, as demand has dampened and inventory levels have continued to rise.
“We continue to watch those all-important Christmas trading updates with interest. Those that have under-performed may need to take decisive action in the coming weeks and months.”
Looking ahead to the outlook for 2023, Swinerd added: “The pandemic undoubtedly tested the crisis handling skills of management teams to their absolute limits. For corporates, however, the debt markets stayed open throughout the crisis and, coupled with the support packages that were made available by the Government, boards had little need to approach their existing lenders with a Plan B.
“Refinancing was not just technically possible but was often available sometimes at unprecedented low rates, whilst most equity raises were well-supported.
“However, we are now observing that lenders are becoming more selective on where they deploy capital and are increasing scrutiny on borrowers’ ability to service debt given higher interest rates. This will result in lower leverage, more covenants and tighter definitions and reduced flexibility on key terms. We are also seeing lenders take tougher stances on underperforming assets, having difficult conversations earlier on.
“So, as the market starts to tighten, we expect to see more administrations and increased use of the new restructuring tools including moratoriums and restructuring plans. These will provide those financiers with a risk appetite the ability to buy into and turn around enterprises caught out by the challenging landscape.”
He concluded: “The silver lining – if one could call it that – is that while the duration of any downturn is expected to be long, the dip is expected to be shallow.
“Our overriding message for businesses, therefore, is to understand the “liquidity runway” – that is, seek to gain as much visibility of cash inflows and outflows over the next weeks and months as is practically. Businesses should also consider what actions can be taken to extend this runway out – engaging with stakeholders and advisors to identify, validate and implement measures that, in time, don’t just help to avert a crisis, but can lead to meaningful performance improvement possible while reconsidering the strategy and direction of the business for the medium to long term.”