Why a 'record low number' of UK firms fell into administration in 2021

A record low number of UK firms are set to have fallen into administration in 2021 despite the heavy toll of the pandemic, according to industry experts.

Insolvency specialists at Interpath Advisory said furlough measures particularly reduced the number of non-voluntary insolvencies over the year but warned there could be a rise next year.

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This is expected to increase by the end of the year but will remain significantly short of the 1,121 from last year and the record low of 1,044 in 2015.

New figures reveal there were 618 administrations in the UK in the 11 months to November. Picture: Adobe Stock

Blair Nimmo, chief executive at Interpath, said that extensions to financial support measures, including furlough, meant much fewer companies collapsed than expected at the start of the year.

"It hasn't been how we would have predicted this time last year," he said.

"Assumptions were based on the fact the support would phase out as originally planned, so in the end we had much less insolvency activity in the second and third quarters than we would have thought.

"Personally, I think furlough was the biggest single factor. Obviously other supports all had their impact, but the continued extension helped a lot of firms keep their heads above water."

He highlighted there was no wave of retail and hospitality administrations on the scale seen in the UK in previous years.

However, he said soaring inflation in wholesale energy prices meant the sector most notably affected by administrations was energy.

Mr Nimmo said: "The cost rises we are really starting to see now are going to create some pressure and we have already seen that with wholesale energy prices.

"Energy has been the main area where you can say it has been actively busy this year, with both smaller and some bigger firms facing difficulties."

Figures from the insolvency service also revealed that although administrations remained depressed, there has been a steady rise in creditors' voluntary liquidations, which have risen to levels not seen since long before the pandemic.

Voluntary liquidations are much more common among smaller businesses and experts say this pattern reflects a growing number of small companies wrapping up voluntarily after the end of pandemic financial support.

The insolvency service data for November highlighted 1,521 voluntary liquidations - a 43 per cent jump against November in 2019.

It added that other types of insolvencies, such as compulsory liquidations and administrations, remained lower than before the pandemic.

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James Mitchinson