Over a quarter of businesses entering administration live on

Twenty-seven per cent of UK businesses that enter administration emerge intact and carry on trading in some form, according to research.

This indicates that buyers’ efforts to rescue failed businesses are largely successful, given that the worst cases will have no bidders.

The survey was conducted by research consultancy ComRes for the insolvency practitioner’s trade body R3. The research confirms that a company’s fall into administration does not automatically signal the death of a business.
In many instances, administration actually facilitates a restructuring, putting the company on a new path to growth. ComRes interviewed 429 UK insolvency practitioners (IPs) between 12th December 2012 and 22nd January 2013.

The information garnered shows that out of all businesses that had recently entered formal administration processes with these IPs, 27 per cent continued to trade in some capacity. Many of these secured businesses will have been bought by another company, or purchased in a pre-pack administration, before being pared down or restructured into profitable enterprises.

The survey revealed that 6,100 businesses were saved out of administration, with about 761,000 jobs secured. A total of 22,590 businesses entered administration during 2012, representing an 11 per cent drop from a peak in 2009 of 25,432 businesses.

Former R3 President Lee Manning observed: “The insolvency profession may seem at first glance an unlikely saviour of businesses and jobs, but a struggling business may well survive in some form.

The findings also highlight practitioner work involves advising a business pre-insolvency or restructuring, often overlooked and by necessity under the radar. Our insolvency regime is shown to be flexible with a variety of options to suit any distress situation. I am heartened by the high numbers of jobs saved and the contribution that is making to the UK economy.”

There has been widespread media coverage of scores of companies that have stepped in to purchase and rescue failed businesses over the course of the recession. The research hints at the value existing in distressed businesses. Many of these opportunities are now becoming highly competitive amongst buyers. For example, aircraft parts maker, BHW (Components) Limited, entered administration towards the end of March this year, then in early May a2e Venture Catalysts Limited announced its purchase, winning the deal despite competition from other firms including Hilco.

This alludes to the trend for private equity firms to purchase ailing businesses, restructure and bring them back to profit, before selling them on. The well-publicised case of high street retailer Game, which was in a dire situation with losses of £18 million before entering administration in March 2012, demonstrated that, with the right resources and a proactive approach, a business can be profitably turned around. OpCapita bought the troubled retailer out of administration and is now in a much stronger position with sales of £600 million, albeit with a third fewer stores.

That Blaze Arts and Entertainment’s purchase of Nono8 bar and nightclub out of administration late last year illustrates that businesses are also successfully buying their rivals. The sale secured the employees’ positions and kept the club open for trading, while strengthening Blaze’s balance sheet and market share.

This encouraging news will strengthen buyers’ resolve to step in and take advantage of other businesses’ downfall, while being prepared to think creatively about the turnaround process.

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