Insights

Deloitte Insolvency Statistics - A year in review 2018

Lowest levels of corporate insolvencies recorded since 2012

Uncertainty about international trade agreements, Brexit and shifting consumer behavioural trends will continue to influence future figures.

Service industry records 107 fewer insolvencies when compared to 2017, while construction sector insolvencies are up by 50.

The latest insolvency statistics published by Deloitte show that the total number of Corporate insolvencies recorded in 2018 stands at 767. This represents a decrease of 12% from the 2017 figures, when the total number recorded was 874.

The 2018 figures recorded reflect the lowest level of insolvency appointments since 2012, when a total of 1,684 insolvencies were documented.

Creditors’ voluntary Liquidations (CVLs)

A closer look at the statistics indicates that of the total 767 Corporate insolvencies, Creditors’ voluntary Liquidations (CVLs) accounted for the majority, with a total of 539 recorded in 2018 (70%). Although, this is a marginal 1% increase on the number of CVLs recorded in 2017 (535), against the backdrop of the overall decrease in corporate insolvencies in 2018, CVLs as a percentage of overall insolvencies have increased by 9% year on year indicating a growing prevalence of the process as a means of addressing corporate insolvencies.

Corporate Receivership

By contrast, the Corporate Receivership process, the second most prevalent Corporate Insolvency tool after the CVL (with 125 appointments recorded in 2018) has seen a sharp decline in incidence year on year relative to the total number of Corporate insolvencies recorded. Appointments have decreased from 247 in 2017 which represented 28% of total insolvencies recorded in that year to 125 in 2018 (16% of total insolvencies recorded).

The Corporate Receivership process is triggered when a creditor (usually a bank or finance provider) holding security over specific assets of a Company or over a Company generally enforces over that security and appoints a Receiver generally as a result of a default on a liability owing by the Company.

The sharp decline in incidence of the Corporate Receivership process year on year is reflective of a dip in enforcement activity as private equity acquirers of non-performing loan (NPL) books have now worked through the majority of the distressed corporate assets in the portfolios which were acquired in 2014 and 2015. In addition to this, it is possible that in the context of the improving Irish economy and property market, banks and private equity companies holding security are engaging with Companies in relation to their debt exposure with a view to bringing about successful, consensual resolutions and settlements without having to resort to formal enforcement.

Furthermore, it may also be the case that with the ever increasing availability of risk capital, Companies with significant debt exposure to banks and private equity creditors are availing of options to refinance their existing loans with alternative financiers to avoid enforcement.

As an additional point in relation to the Corporate Receivership process, it should also be noted that a number of large NPL transactions completed during 2018. On foot of these transactions, enforcement of security and Receivership appointments are expected to rise in 2019 as the acquirers of these loan books commence the work through of the distressed assets. We would therefore expect this increase in activity to be reflected in the Corporate Receivership figures for 2019.  

Court Liquidations

The third most prevalent corporate insolvency process, Court Liquidations have increased year on year from 63 to 64 (1%). The increase of Court Liquidations as a percentage of overall Corporate insolvencies in 2018 (8%) is only marginally higher than that recorded in 2017 (7%).

Examinership

The fourth and final Irish Corporate insolvency process is the Examinership process, Irelands formal corporate rescue mechanism. A broad look at the figures for 2018 would suggest that incidence of Examinership appointments has increased from 29 in 2017 to 39 in 2018. However, 17 out of the 39 appointments in 2018 refer to the Bradley Pharmacy group examinership which has had the effect of distorting the overall figures.  On a normalised basis, Examinership appointment figures trail at 23 in 2018, which represents 3% of the overall Corporate Insolvency figures. This is in line with 2017 when the level of Examinerships recorded was also 3% of total insolvencies. Examinerships have therefore decreased in line with overall insolvencies.

Given the overall improvement in the economy and the increased availability of risk capital, the level of Examinership appointments continues to remain unexpectedly low. This is particularly noteworthy when one considers that the mechanism has in recent years been more accessible to Company directors through a less costly and more efficient circuit court application process than had previously been the case. Directors of struggling Companies are encouraged to consider the examinership process and to seek professional advice and assistance at the earliest opportunity to enhance their Company’s prospects of survival.

Regional focus

Geographically, the highest number of Corporate insolvencies in the period was recorded in Leinster, with 66% of total appointments. This is consistent with the same period last year when Leinster had the same percentage of all Corporate insolvency appointments. In 2018, Munster had 20% of appointments, Connaught 11% and Ulster 2%. Compared to 2017, the number of appointments has dropped considerably in all regions. In Leinster, the total number of Corporate insolvencies dropped by 15.5% from 583 in 2017 to 510 in 2018, in Munster the number decreased from 166 in 2017 to 153 in 2018 (9%), Connaught recorded a significant decline from 106 in 2017 to 85 in 2018 (19%), while Ulster remained relatively constant with 19 insolvencies recorded both in 2017 and 2018.

Industry focus

Looking at the ‘Top Four’ industry sectors, the service industry recorded for the third year in a row the highest number of insolvencies in 2018 with 174 appointments (22.69% of total insolvencies.) This represents a decrease of 108 from 2017 figures when the Service industry sector recorded 282 (32.27% of total insolvencies recorded in that year).

Financial Services Companies accounted for the largest number of insolvencies within the services sector with 49 Insolvencies. Within the financial services sector, insolvencies most commonly affected investment holding Companies with 20 such companies going insolvent during 2018. Other financial services affected by insolvency during 2018 included investment advisory and brokerage services. Following the financial services sector, within the services sector, Professional Services Companies were the second most affected by insolvency during 2018 with 23 incidences recorded. This was followed by Trade businesses with 17 insolvencies, Property Related Services with 16 Insolvencies, Advertising and Publishing services with 10 Insolvencies and IT and Communications services with 8 Insolvencies. Other services which recorded insolvencies during 2018 include medical services, Energy related services, Health and Fitness, Forestry, Business Support Services, Security Services, Dry Cleaning Services and Educational and training services.

Following the services sector, the construction industry recorded the second highest level of insolvencies with 158 (20% of total), which represents an increase from 108 (12.36% of total) in 2017.

Commenting on this, David Van Dessel, Partner at Deloitte said: “The increase in construction related insolvencies reflects that there are still legacy issues at play in the sector but also that profitability is being impacted due to cost inflation  where a combination of fixed price contracts in an inflationary environment along with the reduced margin available in private homes as sales price increases flatten is impacting.  ”

The third slot is taken by the retail sector which recorded 117 insolvencies, 15% of the total and an increase of 15 from 102 (11.67% of total) from 2017. Increased costs associated with physical stores such as rates, insurance and customer service coupled with the shifting consumer preference for online shopping are likely contributory factors to the increase in insolvencies in the retail space as is   intense downward pressure on prices from large retailers, particularly in the fashion and grocery retail sectors.

The hospitality sector is fourth with 94 insolvencies (12.11% of total). This is an increase of 5 appointments year on year.  2019 Insolvency numbers in this sector may be affected by the saturation of the market, staff shortages and a constricted labour market.

Other shifts have been noted in the manufacturing sector, which recorded an increase of 28% from 43 insolvencies documented in 2017 to 55 in 2018, and in the wholesale sector, which recorded a significant decrease of 31%, from 42 insolvencies in 2017 to 29 in 2018.

Looking Forward to 2019

Looking ahead, Mr Van Dessel said, “A further material decline in insolvency numbers is not anticipated for 2019. Against the backdrop of an improving economy, there is likely to be an increase in new start up activity and not all such new companies formed are likely to be successful.”

“Other factors such as a potential “Hard Brexit” scenario and concerns over Global trade may also have a material impact on the statistics. Ireland’s economy is exposed to the effects of these factors and is particularly exposed to international markets by the significant presence of global brands, which in turn has a direct impact on our domestic economy. Should the concerns materialise in 2019, it is likely that many sectors will be adversely impacted.”

Ends

For Further Information Please Contact

Aoibheann O’Sullivan

Murray

01 498 0300 / 087 6291453

aosullivan@murrayconsultants.ie

Claire Quinn

Deloitte

01 417 2356 / 087 9777783

cquinn@deloitte.ie

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