Inflation fuels sharp rise in businesses going bust

The number of businesses falling into administration rose by almost half last year as inflation delivered a “body blow” to companies seeking to recover from the pandemic.

Research by the restructuring firm Interpath found the number of companies filing for administration jumped by 46 per cent from 710 to 1,039.

Retail and casual dining were some of the businesses hardest hit. Filings for insolvency in these sectors rose by 96 per cent and 67 per cent respectively.

Made.com and Joules were some of the most high-profile casualties last year. Next has rescued both brands but some customers lost substantial sums on products that were never delivered.

Consumer businesses have been tipped as candidates for restructurings in the first three months of this year.

Blair Nimmo, chief executive of Interpath, said last year had been a “body blow” for companies already hurt by the Covid lockdowns

He said that the lift in Christmas sales reported by many consumer companies was often due to inflation pushing up prices and could be masking weaker sales volumes.

Nimmo said: “Businesses in the retail and casual dining space continue to face one challenge after another, from rising input costs and interest rate rises, to supply chain disruption and staff shortages, not forgetting falling consumer spend due to the spiralling cost of living.”

Businesses face tough negotiations with lenders on debt after a rise in interest rates. The Bank of England increased the base rate to 3.5 per cent in December after inflation hit 11.1 per cent in October. John Miesner, managing director of Interpath’s debt advisory team, said companies should expect more aggressive behaviour by lenders.

He said: “Lenders will be more selective on where they deploy capital and increase scrutiny on borrowers’ ability to service debt given higher interest rates.

“They will also take tougher stances on underperforming assets and have difficult conversations earlier on. We expect a less generous approach on waivers and amendments, with requests subject to additional compensation and other borrower concessions.”

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Inflation fuels sharp rise in businesses going bust