Corporate insolvencies in Q1 2018 total 188, down 14% when compared with Q1 2017.
Construction Sector has highest level of insolvency activity in Q1 2018
The latest insolvency statistics published by Deloitte show corporate insolvencies in Q1 2018 have totalled 188. When compared with Q1 2017 (219) this represents a decrease of 14% and is in line with the average rate of decrease observed over the last 5 years.
A closer look at the detail shows that of these 188 corporate insolvencies, creditors’ voluntary liquidations accounted for the majority, with 118 recorded in the period (63%). In the comparable period in 2017, creditors’ voluntary liquidations accounted for 114 of the appointments recorded. In Q1 2018 54 receiverships were recorded (29%) compared with 86 in Q1 2017. This mix of insolvencies is typical of other prior periods.
There were 13 court liquidator appointments in the period, up 6 from Q1 2017. Of these 13 appointments, petitions were brought by creditors of the companies in 61% of cases, by the Revenue Commissioners in 23% of cases, and the balance by the company itself.
Examinerships continue to remain at low levels with only 3 examinership appointments in the period. This represents just 1% of the 188 corporate insolvencies and is a marked decreased from the 12 appointments recorded in Q1 2017. This very low level of examinership take-up is consistent with prior periods and shows that the introduction of new legislation in early 2014 has not had the intended effect of encouraging more struggling SMEs to avail of this cost-effective and accessible option. Commenting on this matter David Van Dessel, Partner in Deloitte Restructuring Services stated that “early action by business owners is imperative for successful restructuring. Company directors are implored to seek assistance in addressing their financial difficulties before it’s too late to take remedial action. Statistics from the USA would suggest that 1 in 3 Companies who enter an insolvency process choose a restructuring and the equivalent statistic in the UK points to a figure of 1 in 7. We in Ireland are only registering 1 restructuring out of every 100 corporate insolvencies. There are a myriad of factors behind this statistic but the people that have the power to change that are the directors of financially struggling companies and they can change their future by getting the assistance of a qualified and experienced insolvency practitioner.”
Looking at the statistics we can see that examinership is a success for the majority of companies who take this early action. In 2017, of the 29 appointments in total, 28 have exited the process at the end of the year with 15 of these successfully returning to trading (54%) and 9 going into liquidation. Four Receivers were appointed to companies and one company remains in examinership. This success rate is lower in comparison with 2016 when more than 70% of companies returned successfully to trading but still demonstrates that many struggling companies can return to an even keel if they attempt an examinership. Companies who deal with their historical debts through a restructuring process will emerge with stronger balance sheets, which in turn opens doors for them to debt and equity providers, enabling them to grow their businesses.
Geographically, the highest number of corporate insolvencies in Q1 2018 was recorded in Leinster with 65% of total appointments. This is consistent with the comparable period in 2017 where Leinster also had 64% of all corporate insolvency appointments. In Q1 2018 Munster had 26% of appointments, Connaught 7% and Ulster just 1%, again showing consistency with the prior period.
Looking at the ‘Top Five’ industry sectors, it was the construction industry which recorded the most insolvencies in Q1 2018 with 42 appointments (22%). This is a 17% increase on Q1 2017 when 36 appointments were recorded. Commenting on this, Vincent Sorohan, Director, of Deloitte’s Real Estate business stated “While a significant portion of corporate insolvencies in the last quarter were construction industry related, these are mainly legacy cases related to the property crash. Construction activity continues to expand at an increasing pace, particularly in the housebuilding sector, and the real challenge facing the industry appears to be a looming skills shortage which may have knock-on effects down the line for companies. It will be interesting to monitor this particular industry in 2018 and beyond, especially in light of recent announcements in the UK of the liquidation of Carillion and the news in Ireland of the Sammon Group opting for examinership, the fallout from which has yet to fully hit the construction sector.”
The services industry recorded the second highest level of appointments with 34 (18%). This is a decrease of 55% from Q1 2017. Since 2015, the service industry has consistently recorded the most corporate insolvencies, this current period being the first since then where it is not in the top spot.
The third slot was again taken by the retail sector where there were 28 insolvencies, 15% of the total, unchanged from Q1 2017.
The manufacturing sector is fourth with 10 insolvencies, 7% of the total, and up significantly from 2 appointments in Q1 2017.
Finally in fifth place is the hospitality sector with 12 insolvencies in the period. Looking closer at the service industry appointments, 50% of appointments were in the area of business service provision, followed by consultancy services (2%) and banking services (1%).
Looking at the overall number of corporate insolvencies in each year since 2007, the highest number was seen in 2012 with 1,684 and the number recorded each year has been declining consistently since then. While we aren’t seeing the low levels of insolvencies recorded during the so-called Celtic Tiger years, it may be that those particularly low numbers seen in 2007 and 2008 were outliers themselves and the levels of this year and last are a more realistic baseline to compare future levels to. Looking to 2018 we predict that the overall level of corporate insolvencies will continue to decline at rates observed in previous years, being approximately 10% per year. Looking at this first quarter of 2018 we can see evidence of this suggested decrease.