Companies entering administration hits three-year high

The number of companies entering administration in March rose to 130, the highest figure since the Covid-19 pandemic first hit according to analysis by Kroll.

The figures show that a rise in administrations continued in March, hitting the highest level since March 2020, when lockdowns made trading impossible for many firms. 

In Quarter 1 (Q1) of 2023, meanwhile, the number of companies entering administration hit 288, up 34% year-on-year.

Construction and manufacturing were the sectors with the most administrations in Q1 with 39 and 38, respectively, this was likely due to the high costs of labour and materials.

Kroll says that a number of factors have combined to drive more companies into rescue proceedings. Alongside inflation, many companies are dealing with the need to repay emergency loans taken out to get them through the pandemic. As of February, 7 per cent of Covid loan applicants were in arrears on their payments, while 3.8 per cent had defaulted. Lenders had made claims to recover the borrowed funds from from the Government’s guarantee scheme for a further 3 per cent of loans.

Last month, the Government also noted that some companies had entered administration “to obstruct investigations into them for fraudulently avoiding the repayment of Government-backed loans during the pandemic” due to a loophole in the law. However, the Insolvency Service is now able to take action in these cases.

Meanwhile, higher interest rates, the increase in corporation tax and the end of support for companies’ energy bills could lead to more companies going into administration going forward.

Kroll Managing Director for Restructuring Sarah Rayment said “While initially concerning, administrations breaking through the pre-pandemic average should not come as a surprise.”

“We know that the rise in energy price and conclusion of pandemic business support is putting pressure on businesses.”

“Undoubtedly stubbornly high inflation and interest rates will lead to more businesses failing, but those who are better organised and capitalised will come out of the other side stronger.”