The number of companies entering administration in March rocketed to 130, the highest figure since the Covid-19 pandemic first hit, in the latest sign of inflation taking its toll on businesses.
New figures from advisory firm Kroll showed that the rise in administrations continued into March, hitting the highest level since March of 2020 when lockdowns made trading impossible for many firms.
For the first time since lockdowns ended, the figure was also above the pre-pandemic average.
“While initially concerning, administrations breaking through the pre-pandemic average should not come as a surprise,” Kroll managing director for restructuring Sarah Rayment said. “We know that the rise in energy price and conclusion of pandemic business support is putting pressure on businesses.”
In Q1 of 2023, meanwhile, the number of companies entering administration - a process to rescue the viable parts of a business that cannot pay its debts - hit 288, up 34% year-on-year.
Construction and manufacturing were the sectors with the most administrations in Q1 with 39 and 38, respectively. Kroll said this was likely due to the high costs of labour and materials.
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.
“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,” Rayment said.
Among the most prominent companies to enter administration in March were Doctor Who filming location Riverside Studios and gin and honey business The British Honey Company.
