No one is safe as administrations rise

Although insolvency discussions inevitably end up in a ‘so what sectors are next for hard times?’ debate, no one is immune to the current downturn, according to the latest stats.

Some 141 companies that filed full or group accounts entered into administration or administrative receivership in January and February.

Although retailers, manufacturers and property developers represent the vast majority of those filings – and you’re unlikely to hear IPs suggest that this breakdown will change for a couple of years – the profession is dealing with insolvencies across all sectors and sizes of business.

One thing to watch for is a collapse further down the retail supply chain, as the demise of large retailers impacts on suppliers.

The latest data for the first two months of the year show several larger businesses going under, so many businesses linked to them will now be in financial difficulty.

‘It’s a cascading trail,’ says PKF head of corporate recovery Philip Long. ‘Woolies falls over, then the suppliers inevitably catch a cold. You get a trail from larger fallouts.’

More disturbingly, Long says that we ‘haven’t seen the peak’. Insolvency practitioners are particularly busy in the north and midlands, he says.

For the firms themselves, the work is varied enough by size, sector and region to keep themselves ticking over.

The likes of Tenon and Begbies Traynor have the most IPs within their firms and a wide reach, yet the biggest firms tend to win appointments with the largest companies, as borne out by the statistics. But due to the rise in appointments to bigger businesses, banks are looking beyond their usual practitioner ports of call, also known as the firms on their ‘panels’, for help on insolvencies.

‘[The banks] are going off panel for IP support,’ says Mercer & Hole insolvency partner Chris Laughton.

Insolvency partners not on banks’ panels can still be appointed by them, particularly when the market is so busy. ‘The banks usually have a soft approach to panels anyway,’ says Laughton.

‘The market has moved on and work doesn’t [necessarily] go to the biggest firms,’ adds Long.

The signs point to increasing workloads for IPs, with anecdotal evidence suggesting that funds are so stretched that some are not expecting to bring about a financial restructuring of a struggling business without a formal insolvency process.

Other figures reveal that liquidations are rising rapidly, which IPs believe means smaller businesses are going to the wall because banks are focused on the debt situation with bigger companies, which has precipitated large business administrations.

‘If you think about the conditions, a year ago, there was money to fund pre-packs, but it’s carnage at the moment, which is focused at the top of the market and the bottom, so liquidations will rise,’ says Begbies Traynor partner Nick Hood.

With smaller firms handling a mass of liquidations, big firms trying to keep up with a flood of major insolvencies and everyone else taking up the slack, being an IP has not been as important a role for nearly 20 years.

But who gets the next high-profile insolvency job, and what type of business it will be, is anyone’s guess.

Fact/figures

661
Administrations or receiverships in Jan/Feb 2009

£8bn
Turnover of large companies entering administration in Jan/Feb 2009