Latest analysis of administration figures by Deloitte, the business advisory firm, has shown that UK businesses suffered in 2006 with an increase of 26% going into administration compared with 2005.

Neville Kahn, reorganisation services partner at Deloitte, commented: “Many businesses have shown signs of distress over the past year.  Our research shows that the worst hit were in the financial services, hospitality & leisure and recruitment and business support services sectors.  The overarching theme of increased costs appears to have hit a large number of the businesses.  In the financial and recruitment sectors we have seen an increased regulatory burden and in hospitality & leisure - a typically high cost environment – we have seen businesses punished by their thin margins when volatility occurs.  Overall, the figures suggest the economy is not as healthy as it might seem on the surface.”

The three sectors which saw dramatic increases in administration levels from 2006 to 2005:

• Recruitment and business support services saw an increase of almost 90%;
• Hospitality and leisure businesses saw an increase of over 50%;
• Financial services businesses, particularly IFAs and personal finance providers saw in increase of nearly 50%.

Lee Manning, reorganisation services partner at Deloitte, went on to discuss the key drivers in the sectors: “The costs associated with running an independent financial advisory business, such as FSA regulation and professional indemnity insurance, have increased significantly in recent years making it more difficult for the smaller businesses to absorb these costs.  The increase in failures in financial services could also be a sign of a gradual shift away from the typical high street IFA in favour of large providers, such as banks and internet buying.  Increased compliance costs is a theme which has affected recruitment businesses as well.  The last year has seen a number of regulatory changes creating an additional audit burden, which may have pushed a number of the smaller operators over the edge.

Manning went on to discuss the hospitality & leisure sector: “Most of the businesses affected are operated from leased premises and therefore heavily operationally geared.  Earnings appear to be becoming more volatile in competitive leisure businesses and relatively high gearing in a leased business gives less scope for error in achieving forecasts.  Often the smaller businesses lack access to capital to invest in their properties and customer offerings, compared with the bigger players who are able to tap into funds and keep their offerings fresh and interesting.”

On the regional numbers, Manning said: “The geographical spread of administrations also gives us an insight into which parts of the country are suffering economically more than others.  The Midlands saw the biggest increase across the country, with a jump of 60% in administrations on the year before, particularly in the manufacturing sector.  Wales also suffered with an increase of 50% in administrations.  Interestingly, the only region to see a reduction in the figures was the North East.”

• Regional administration key facts:
• The Midlands was the worst hit with an increase of 60%;
• Wales was second at 50%;
• The South West saw an increase of 27%;
• London and the South East saw an increase of 25%;
• East Anglia saw an increase of 19%;
• Yorkshire & Humberside saw an increase of 17%;
• The North West figures increased by 15%;
• The North East was the only region to see a reduction at 2%.

Ends

Notes to editor

About the research
The data is compiled from administrations and receiverships in 2005 and 2006, which are legally obliged to be advertised in the London Gazette.  Companies in administration or receivership typically continue to operate but are overseen by a legally appointed insolvency practitioner who endeavours to sell the business as a going concern.  Trading in administration can sometimes last for several months but normally takes only a few weeks before a buyer is found or a business is closed down.  The administration process has become a much more common phenomenon since the introduction of the Enterprise Act 2002, which encourages business rescue, thus increasing the prospect of an improved return to creditors, preventing operational closures and minimising staff redundancies.  While administrations and receiverships are similar in nature, they differ from a liquidation which is essentially the process of winding up a company which is no longer commercially viable. 

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.  The information contained in this press release is correct at the time of going to press.