Deloitte: Administration Rate May Have Improved in 2010, but Many Firms Still “walking a Tight Rope”

Lucas Gilmore, “Big 4″ observer
January 06, 2011 /

Deloitte’s study on administration rate in 2010 revealed that the number of companies falling into receivership went down by 35 percent, from 3,188 in 2009 to 2,086 at the end of the previous year, but many companies are still “walking a tight rope,” the accounting and consultancy firm cautioned.

“A large number of struggling companies were able to stay afloat because of low interest rates, a lenient approach by lenders and HMRC’s favourable Time to Pay scheme. However, the rapidly changing economic environment will no longer make this sustainable,” reorganisation services partner at Deloitte Lee Manning said.

Key findings of the administration rate study showed that during the last quarter of 2010, the number of companies going insolvent went down 6 percent to 438 against 467 in the third quarter. Compared with 2009 statistics, administration rate was recorded for 599 companies, up by 27 percent against that in the same period last year.

Administration rate in property and construction industry, which accounted for 21 percent of the total number of administration, saw a 34 percent decrease, from 683 in 2009 to 453 in 2010, which Deloitte said was a “significant decline” given the battering the sector suffered from economic crisis last year. In the last quarter of 2010, there were 93 administrations recorded compared with 105 in the third quarter, a decline by 11 percent.

“Risk of insolvency plays a big part in the property and construction industry because of its heavy reliance on supply chain relationships,” Manning said. He added that administration rate of the property and construction sector had 20 percent chance in 2010 of going up following the economic downturn in 2008.

On the other hand, the retail sector saw 44 administrations in the last quarter of 2010 compared with 35 in the third quarter, up by 26 percent. However, this was overturned by the fact that overall administration rate of the sector in 2010 fell 43 percent to 165 administrations last year against 290 in 2009.

Manning, however, warned the retail industry to brace itself this year as the government is seen to go on with spending reduction and VAT increase. He suggested that cutbacks on consumer spending will threaten administration rate in the sector to soar this year.

 

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