The number of recruitment companies going into administration continued to creep upwards in the second half of 2009 and there are fears the sector faces further problems this year.

In the last six months of 2009, 57 recruitment businesses went into administration, according to company monitoring service Business Sale Report, a 27% increase on the same period in the previous year. (See recruiter.co.uk for the list of companies.)

The failure of companies to cut costs quickly when sales started to decline caused many to get into trouble, according to Andy Miller, chief finance officer at multi-sector recruiter Bullwalk Investment Group.

“We acquired both Staffwise and Simpson Lang Associates from administrators. In terms of cost cutting these companies didn’t react quickly enough to the economic conditions. There were also one or two large clients that squeezed the company on price and the margins weren’t sustainable,” Miller told Recruiter, adding most of the employees and the majority of clients moved to the new business.

A company enters into administration when it is unable to meet the demands from its creditors. At this point an administrator is appointed to maximise its value

Sectors:

The data for the specialisms of the businesses is incomplete; however, it is clear that every area of the industry has been affected, including the traditionally resilient healthcare sector.

At least 16 multi-sector recruitment companies went into administration in the six-month period monitored, making up the lion’s share of the list.

Liz Longman, UK director of recruiters’ network TEAM, told Recruiter that generalists had been affected the most among its members. “The more specialist areas, [for example] new energy and that kind of technical sector, still had requirements,” she said

The number of recruitment agencies going into administration in the North-East and North-West of England far outstripped that of other regions in the UK, making up 28% of the total list. The latest figures from the Office of National Statistics show the North-East and North-West also have the lowest percentage of working-age population in employment outside of London, at 71% and 72% respectively.

If headline employment rates affect recruitment agencies, the latest figures from the Chartered Institute of Personnel and Development are worrying. It predicts the jobless total will continue to rise until at least the summer, regardless of the economy returning to growth.

More to come:

 

Bob Young, a partner at business rescue, recovery and restructuring specialist Begbies Traynor, told Recruiter he thinks the increase in administrations will continue throughout 2010.

“In my view this recession will be followed by a long tail of increasing insolvencies. A combination of a continued poor economy, recovery of arrears by HM Revenue & Customs [HMRC] and an inevitable increase in inflation, which will push up interest rates, will mean that those businesses that have been clinging on will fall over the edge of the cliff,” he said, adding that so far HMRC had been sympathetic to the problems of recruitment companies.

A spokesperson for HMRC said that 245,000 arrangements had been made with businesses across a variety of sectors to delay the payment of PAYE and VAT, totalling£4.27bn in debt.

Anne Fairweather, head of public policy at trade body the Recruitment and Employment Confederation (REC), told Recruiter that many of its members had benefited from the Revenue’s Time to Pay scheme, especially where access to invoice financing became more difficult.

Most recruitment businesses on the list which were contacted by Recruiter were still trading after they had gone through administration. John D Travers, owner of business advisors and insolvency practitioners John D Travers & Company, told Recruiter that this was normally the case.

Begbies Traynor’s Young added that every business in the staffing sector for which he had acted as an administrator had remained in business: “We maximise the value by selling them as going concerns, thus realising a payment for goodwill and asset values which would not have been achieved in the event of liquidation.”

Andy Hogarth, managing director of multi-sector recruiter Staffline, said his firm has purchased several companies which have had administrators appointed or come close.

The problem is, when a recruitment company is in trouble word gets out and the competition, at least in the industrial sector, are like wolves on a dying animal

The year ahead

As the economy begins to recover in 2010 the employment market will have to follow, albeit more slowly perhaps than desired. While economic uncertainty remains, recruiters face further pressure from creditors and clients.

Whatever happens economically it seems the current tide of administrations will not be stemmed in the near future.

News taken from recruiter.co.uk.