Administrations Flat As Lenders Shun Formal Insolvency

Michelle Remo, “Big 4″ observer
February 10, 2012 /

The latest statistics from the Insolvency Service show a broadly flat quarter on quarter picture with insolvencies rising just 0.4 percent from the third to the fourth quarter last year.

The year on year comparison shows a 7.2 percent rise in corporate insolvencies and a 12.4 percent for company voluntary arrangements (CVAs). Hotel, restaurant and transport companies saw the largest increase of 32% in administration appointments while real estate continues to dominate the data, making up around a third of all appointments.

This broadly flat result, in the face of an extremely challenging economic climate, suggests companies and their lenders are turning to measures other than formal insolvency procedures to restructure businesses’ debts.

David Costley-Wood, restructuring partner at KPMG in the UK, commented: “These insolvency figures do not reflect the enormous amount of work that is going on to restructure debt in ways that fall short of a formal insolvency. These include debt sales, debt for equity swaps, and refinancings, all of which can avoid the underlying business going into a formal administration.

“Where a formal insolvency appointment is necessary to crystallise the debt, freeing the viable part of the business, administration can help the efficient recycling of assets and in certain cases ‘pre-pack’ administrations can help to avoid the uncertainty associated with a fully fledged trading administration and save more jobs; La Senza and Blacks are two high profile names that have recently restructured along these lines and we are seeing a huge amount of similar activity in mid-sized UK companies more broadly.”

Furthermore, the hotel and restaurant sector had a tough fourth quarter with administrations rising 32 percent from the fourth quarter of 2010 (62 in Q4 2011 vs 47 in Q4 2010);

Transport administrations also rose by 82 percent from 17 in the fourth quarter of 2010 to 31 in the fourth quarter last year.

Real estate continues to account for the largest proportion of total administrations with 216 in this sector out of a total of 658 in the quarter as a whole.

The construction sector saw the largest rise in CVAs where the total increased by 53 percent from 26 in Q4 2010 to 40 in the fourth quarter of last year.


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