The number of companies filing for administration across the Midlands has jumped by 32 per cent on this time last year due to a reported combination of factors such as inflation, high energy bills and interest rate rises.
Analysis of notices in The Gazette by restructuring and debt advisors Interpath Advisory suggests 29 Midlands firms fell into administration in the first three months of the year – up from 22 this time last year.
Regional companies which have found themselves in financial difficulties so far this year include Dako Construction, based at Colwick Quays Business Park in Nottingham, which called in administrators in February. Midlands-based aerospace, defence and power generation supplier Bromford Industries – and its subsidiary Accrofab – appointed Interpath Advisory as administrators in March.
The Midlands figures mirror the rising UK picture which saw 285 companies fall into administration in the first quarter of 2023 – up from 246 companies a year earlier.
Chris Pole, managing director and head of the Midlands team at Interpath Advisory, said: “It has been an extremely challenging few years for UK businesses trying to navigate rising inflation and interest rates, political turbulence and changes in consumer confidence, all following a global pandemic.
“Yet in spite of these disruptive economic conditions, we have seen relatively low levels of insolvencies over the last three years, proving many British businesses to be remarkably resilient.
“It remains to be seen, however, whether this changes now that government support is tapering.
“The energy support scheme for businesses was replaced earlier this month with the Energy Bills Discount Scheme which is only applicable to the most intensive energy users.
“Interestingly, there are a number of sectors not eligible for the scheme that still use a lot of energy such as pubs, restaurants, and other leisure businesses.
“With energy bills likely to remain elevated for the foreseeable future, many businesses will be keeping an extra close eye on costs, looking at their cash flows and considering whether to pass on extra operating costs in the form of price rises.
“The pandemic and broader economic headwinds have made the last few years a particularly tough period for UK businesses, with a number of high profile appointments in the first quarter of this year including the administrations of Flybe Limited and Tolent plc, as well as the near miss of Silicon Valley Bank UK.
“Indeed, the international banking sector in particular has experienced a fair amount of turbulence in recent months, with SVB, Credit Suisse, Signature Bank, and First Republic Bank all making headlines.
“The food and drink sector is currently facing several challenges including supply chain issues, increasing costs, and labour shortages.
“Producers are struggling to deal with an average input cost inflation of over 20 per cent, coupled with changing markets and cooling consumer demand. In addition, the food supply chain is heavily reliant on the energy sector, and the current market is volatile to incremental price increases.
“Whilst we have seen some instances of businesses successfully securing price rises, the lag between having incurred the additional costs and the time taken to recover these from customers can often be well over three months.
“This can leave businesses with a cash shortfall which they will be reliant on existing reserves or external support to help bridge. We have seen this be a bridge too far for several companies in the food sector in Q1.
“There is no doubt that corporates in general have fared much better than the doom and gloom predicted last year.
“However, with a highly uncertain economic outlook, it will be interesting to see whether the rise in corporate failures seen so far in 2023 continues during the next quarter, and is indeed here to stay for the rest of the year.
“As ever, engagement with key stakeholders, examination and implementation of cost saving schemes to protect margins, and taking advice at an early stage will provide businesses with the best chance of the navigating choppy waters.”
