The number of companies filing for administration jumped by nearly half in 2022 as rising inflation, weaker trade and geopolitical uncertainty continue to put businesses under pressure, research by Interpath Advisory has found.
Analysis of notices in The Gazette revealed that 1,039 companies fell into administration in 2022 – up from 710 companies in 2021. This represents a 46% increase on last year, however, it is still well below the pre-pandemic levels of 1,422 in 2019 and 1,337 in 2018.
In 2022, there were 96% more filings for insolvency in the retail sector compared with 2021, and 67% more filings in the leisure and hospitality sector.
While retailers benefited from an increase in sales in December – up by 6.9% 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.
Blair Nimmo, chief executive of Interpath Advisory 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 % in November, the longer-term outlook remains highly uncertain and rather gloomy. 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.”
On the outlook for 2023, Nimmo said: “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.”
