Despite fears of a double dip recession, corporate administrations have dropped to a pre-credit crunch low according to analysis by Deloitte, the business advisory firm. Research shows that the first six months of 2010 saw 1,065 administrations, down 43% on the same period last year and even 25% less than H1 2006, the last full year before the financial downturn began, which saw 1,419 administrations. In addition, administrations dropped 18% in the second quarter of 2010 compared with the first three months of the year.
Lee Manning, reorganisation services partner at Deloitte, comments: “Whilst Deloitte’s latest CFO Survey revealed increasing fears of a double dip recession, these figures paint a more positive picture and may provide a corporate confidence boost. The proactive approach adopted by companies and lenders alike has had, and continues to have a positive effect in most distressed situations. By acting sooner, companies have, been able to remedy problems more effectively. Equally, lenders have been supportive, preferring to make debt for equity swaps or even advance suitably priced risk capital, rather than crystallise their debt through an insolvency process.”
The pronounced decrease in administrations is being seen across a broad spectrum of industries; retail administrations fell a staggering 57% in the first six months of this year, compared with the same period in 2009; similarly, property and construction failures are down 43% year on year, and manufacturing administrations are down 46%. Quarter on quarter this trend has continued, with retail administrations down 20%, property and construction down 25% and manufacturing down 27% compared to the first three months of the year.
Manning adds: “We are seeing a steady decline in administrations and this is certainly a positive sign that the climate is stabilising. I would be very surprised if administration levels increased dramatically this year; rather I would expect the second half to mirror the levels of activity we’ve seen in H1.
“The summer months traditionally see lower levels of administration activity, particularly given the periodic absence of key decision makers taking summers holidays. We expect this decline to continue into Q3. Confidence has been on the rise, with consumer spending holding up better than expected, and corporate confidence being felt more widely. For example manufacturing, one sub-sector impacted, has experienced improved output.
“Retailers have also experienced a more buoyant six months, following the high number of retail administrations we saw in 2008 and 2009, with many retailers now picking up the market share left by those businesses that failed. Clearly the economic situation will remain challenging and whilst increased VAT in the New Year won’t have a material impact on the prices of most products, this won’t help consumer confidence either. To date retailers have been positive, responding well to the changing environment, managing their cash flows and stock levels appropriately, as well as having successful discussions with landlords over spreading the burden of rent and service charges. I expect this level of engagement to continue, with CVAs and informal arrangements with creditors being used as a constructive alternative to administration.”
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