31 October, 2016
Research by Opus Restructuring, a leading advisory, restructuring and insolvency firm, reveals that Administration, the UK’s flagship business rescue procedure, is ineffective in over two thirds of cases.
Using data and analytics supplied by Company Watch, a financial analytics company, Opus reviewed the outcomes of 4,581 Administration cases in England & Wales which started in the past five years. Almost 2,000 of the Administrations remain in progress.
Out of the 2,607 Administrations completed, 2,344 (90%) of the distressed companies resulted in either being liquidated or being dissolved without going through a liquidation. High profile failures have included the likes of Comet, Blockbuster and La Senza.
In just 263 (10%) of cases, the company exited Administration and remains active. These companies tend to be focussed in the hotel and property development sectors.
Seventy five of the surviving firms used the successful implementation of a Company Voluntary Arrangement (CVA) as the exit route. A significant number of these are football clubs, such as Portsmouth, Hearts and Dunfermline Athletic.
It is likely that up to 513* of the Administrations ending in Liquidation or Dissolution may have involved the rescue and long term survival of the business through a Pre-Pack sale or a sale following a period of trading (a Trading Administration).
If these are added to the known successes, the total number of positive outcomes rises to 776 and the success rate for Administrations from 10% to 30%.
The research also confirmed that a surprisingly high number of Administrations last longer than the one year period contemplated by the relevant insolvency legislation.
Out of the 1,960 companies still in Administration, 757 (39%) had been in the process for more than a year and 301 (15%) had been in Administration for more than two years. Property companies feature heavily among these, as well as some highly complex financial services businesses, such as MF Global and the failed international law firm, Dewey & Leboeuf.
A membership survey conducted in 2015 by the Association of Business Recovery Professionals (R3) suggests that the UK insolvency profession saved some 230,000 jobs in 2013/14.
The R3 research did not cover the outcomes for the creditors of the companies concerned, but the indications from the Graham Review report and from research undertaken by R3 in 2001 are that most unsecured creditors were unlikely to have seen a return of more than 7p in the pound.
A free copy of the joint report by Opus Restructuring & Company Watch can be downloaded from both companies.
Nick Hood, Business Risk Adviser at Opus Restructuring, said:
“Opus research shows that, at best, around only 30% of business rescue attempts through the Administration process are successful. It’s a disappointing result, which reflects the endemic ostrich-like behaviour of struggling entrepreneurs who wait far too long before admitting they have problems. However, we believe a lot more troubled businesses could be rescued if they sought much earlier help from specialist advisers while a broader range of more constructive options can be deployed."
Denis Baker, CEO of Company Watch, said:
“An Administration success rate of only 30% and a miniscule return for unsecured creditors of just 7p in the pound highlights just how important it is for credit managers to constantly monitor and manage customer risk. The earlier a client or key supplier suffering financial distress is identified, the more chance they have of acting to prevent damage to their business."
“By the time an Administration is announced it’s too late of course, which can severely disrupt their business as well as leave them with potentially heavy write downs.”
Further information, please contact:
Neil Boom, Gresham PR - +44 (0)7866 805 108
* Applying the results of the Graham Review’s research in 2014, which can be found here: https://www.gov.uk/government/publications/graham-review-into-pre-pack-administration
About Opus Restructuring
Opus is a specialist boutique practice helping businesses and individuals to deal with the various challenges that are faced during the business life cycle. Opus offers provides a broad range of services:
•Turnaround, restructuring and formal insolvency;
•Business advisory, including consensual work outs;
•Raising equity and debt finance;
•Lead advisory role for business sales;
•Forensic and dispute resolution;
About Company Watch
Company Watch rates and predicts the financial health of companies worldwide. It provides in-depth analysis of companies by applying its unique H-Score® methodology to published financial data. Since its launch, the H-Score® has identified the vast majority of corporate insolvencies or restructurings in advance. Company Watch is used by major international blue chip corporations, banks, fund managers, insurance companies, public sector bodies, accountancy firms, restructuring practices and other professional organisations throughout the world.