Total number of Insolvencies sees decrease of 12% for the first six months of 2020
Covid-19 impact has not fully materialised and insolvencies expected to increase in late 2020 and into 2021
Companies experiencing challenging trading conditions urged to take early action so they can avail of the greatest suite of options from refinancing to restructuring, as insolvencies expected to increase throughout 2020 and into 2021, according to David Van Dessel at Deloitte Ireland.
The total number of corporate insolvencies recorded in H1 2020 stands at 273, according to the latest insolvency statistics published by Deloitte. This represents a decrease of 11% from the same period in 2019 when the total number recorded was 310.
Commenting on the figures, David Van Dessel, Partner, Financial Advisory at Deloitte said,
The effects of the Covid 19 Pandemic on the Irish economy, while immediate and particularly impactful in respect of the retail and hospitality sectors, have not fully materialised in terms of Corporate Insolvencies. We anticipate that the last quarter of 2020 and the first half of 2021 will paint a more accurate picture of how the lockdown period and the restrictions implemented during the Covid crisis have influenced the Irish economy and the ability of Irish companies to survive the crisis.
It is undeniable that the current Covid 19 crisis has already created a significant challenge for the Irish Economy and in particular for the retail and hospitality sectors. The lifting of the restrictions is expected to alleviate the trading challenges of many businesses within these sectors. However, the sustained loss of trade will likely prove very damaging for many businesses and some will not be in a position to continue trading as a going concern. In addition, mandatory social distancing measures as well as changes in consumer behaviour and sentiment will likely bring fresh trading challenges for businesses to overcome. While the current insolvency numbers already indicate that the retail and hospitality sectors are experiencing more insolvencies than in previous periods, these numbers are expected to increase throughout 2020 and into 2021.
For challenged businesses operating in these sectors and indeed any sector, adopting a strategy of early action will always provide them and their directors with the greatest suite of options. Despite the challenging environment, there are many options available to struggling businesses from refinancing to restructuring. With the right advices provided and the right strategy implemented at an early stage, businesses can put themselves in the best possible position to resume a viable operation when the ‘new normal’ materialises.
Age profile analysis
22% (60) of the insolvencies recorded during the first six months of 2020 relate to companies less than five years old, 25% (67) are in the 5-10 years bracket, 29% (78) are in the 10-20 years bracket, 9% (24) are in the 20-30 years bracket, 7% (20) are in the 30-40 years bracket and 9% (24) are over 40 years old. Similarly to the findings recorded in previous periods, the age profile indicates that the majority of insolvent companies are in the 5 to 20 years old bracket rather than in the start-up sector, which sector is generally considered to be companies under 5 years old.
Creditors’ Voluntary Liquidations (CVL) process accounted for the majority of insolvencies, as it has done in previous years. 214 CVLs were recorded in H1 2020 representing 79% (206 / 66% in H1 2019) of overall insolvency numbers.
The 2020 insolvency statistics recorded a quarter on quarter increase in the number of Court liquidation appointments, from 5 appointments in Q1 2020 to 20 in Q2. However, the figures for H1 2020, compared to H1 2019, depict a significant decrease of 57% in the number of Court Liquidations, with 25 instances recorded in H1 2020.
Corporate Receivership has experienced a steady decline in recent years and this continued into the first half of 2020, when 27 companies (10% of total insolvencies) entered receivership. This compares with 75 (17%) recorded in H1 2019. It is possible that the decline in recent Receivership activity could be as a result of the Covid 19 crisis, as it is probable that financial institutions have held back from progressing enforcement proceedings at this time.
“Looking ahead, there is likely to be an increase in Receivership activity in the second half of 2020 when such moratoriums are lifted. At this time, directors of companies with mortgaged assets, who are facing trading or cash flow difficulties, perhaps as a result of the Covid 19 crisis, are advised to engage with their secured lender or financial advisor at the earliest opportunity to discuss debt restructuring and refinance options”, said Van Dessel.
The Examinership process, which despite its proven effectiveness as a rescue option has typically experienced very low levels of uptake, has once again experienced notable lower levels in H1 2020, with only seven Examinership petitions filed, versus 16 in H1 2019.
Geographically, the highest number of corporate insolvencies in the period was recorded in Leinster, with 73% of total appointments and consistent with the same period last year. Munster had 20% of appointments, Connaught 4% and Ulster also 3%. Compared to the same period in 2019, the number of appointments per region has fluctuated only slightly. In Leinster, the total number of Corporate insolvencies has remained constant with 200 in H1 2019 and 199 in H1 2020, in Munster the number also decreased from 68 in 2019 to 53 in 2020 (22%), Connaught recorded again a significant decline from 32 in 2019 to 12 in 2020 (63%), while Ulster remained relatively constant with 9 insolvencies recorded in 2020, compared to 10 in 2019.
Looking at the top four industry sectors, the service industry once again recorded the highest number of corporate insolvencies in H1 2020 with 95 appointments (35% of total insolvencies) with financial services companies accounting for the largest number with 30 insolvencies. On a year to year basis the insolvencies recorded in the financial sector have increased only marginally, with 28 incidences recorded in H1 2019.
Personal services companies featured prominently with 24 insolvencies recorded during the first six months of 2020: 13 operated in the health and fitness industry and 11 were beauty services providers. The real estate and property services companies recorded 11 insolvencies in H1 2020 representing a significant decrease of 45% from the same period in 2019.
The retail sector recorded the second largest number of appointments in H1 2020, with 51 companies going through an insolvency process. It is notable that 33% of the companies operated in the retail sale of clothing industry. Compared to the same period in 2019, the number of insolvencies in the retail sector has also increased by 24%.
The hospitality sector recorded the third highest level of insolvencies with 48 incidences representing 18% of the total number. This is marginally higher than the level of insolvencies recorded in that sector during the same period in 2019 (13%).
The construction industry is fourth with 27 insolvencies (10% of total). The level of insolvencies in this sector has decreased notably year on year, the numbers dropping by 53% compared to H1 2019 (57). It should be noted however, that the situation within the commercial real estate market is still unfolding and the implications from the Covid19 crisis are not yet clear. In this respect, the Deloitte Real Advisory team has put together a Landlord and Tenant Playbook, which gives an overview of the main issues that should be taken into consideration at this early stage.
Other notable movements in insolvency numbers have been observed in the wholesale sector, which recorded an increase of 200% from a low of 4 corporate insolvencies in H1 2019 to 15 in H1 2020.
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