Administrations fall to historic low

Administrations fall to historic low

The number of companies going into administration fell to historic lows during 2020, as the array of government COVID-19 support measures continue to provide a lifeline for those businesses who have been adversely affected by the pandemic.

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Analysis of notices in The Gazette by KPMG’s Restructuring practice showed that 1,112 companies went into administration over the course of 2020 – this is the lowest annual total since KPMG started tracking the data in 2005, and a fall of 22% on 2019, which saw 1,425 administrations.

Insolvency appointments in the final quarter of the year were particularly low, with only 216 companies entering into administration from October through December – again, the lowest quarterly total since 2005.

The number of insolvencies seen in the leisure and hospitality industries – which have borne the brunt of the impact of lockdown restrictions – also fell sharply from 49 in Q3 to 27 in Q4. However, this sector still accounted for the lions’ share of administrations, alongside building and construction (27); real estate (24) and retail (22).

Blair Nimmo, head of Restructuring for KPMG in the UK, said: “Comfort can be taken from the fact that fewer businesses than expected have been forced into insolvency during the crisis, as the breadth and depth of support measures available, coupled with a supportive lending community, have given organisations that vital lifeline.

“We also know that there are a number of sectors, including the likes of tech, online retail and financial services, which have seen something of a COVID-bounce.

“We need to be clear, however, that these figures provide a distorted view of reality.  Those businesses that remain in hibernation due to ongoing lockdown measures, such as those in the leisure and hospitality and travel and tourism sectors, continue to accrue liabilities while seeing precious little cash flow into the business. At some point, rent and tax deferrals and loans will need to be repaid. The Job Retention Scheme will unwind. Weaning off these support schemes is going to be a massive challenge for many.”

While the pandemic and resulting lockdown measures continue to have ramifications for many businesses, the impact of the UK’s new deal with the European Union has also come into focus.

Blair Nimmo explains: “There was certainly a collective sigh of relief when a Brexit deal was signed on Christmas Eve, with the UK avoiding a damaging cliff-edge scenario. But as businesses now grapple with the realities of our new trading relationship, there inevitably will be some bumps in the road.  

© 2021 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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