Total number of insolvencies sees decrease of 18% for the first quarter of 2020
The total number of corporate insolvencies recorded in Q1 2020 stands at 159, according to the latest insolvency statistics published by Deloitte. This represents a decrease of 18% from the same period in 2019 when the total number recorded was 195.
Commenting on the figures, David Van Dessel, Partner, Financial Advisory at Deloitte said,
The decrease in corporate insolvency activity has been a consistent trend in recent years as we move further away from the 2008 financial crisis, but the anticipated economic impact of Covid-19 might change the direction of that trend in the near future. Irish corporates have been faced with having to take extremely difficult measures in doing their part in the battle against Covid-19, which will obviously have a major impact on their finances. According to a recent Chambers Ireland survey, more than 60% of Irish companies have discussed an extension of payment terms with creditors, particularly with landlords, banks and the Revenue Commissioners and 20% of companies have laid off their entire workforce.
In response to the economic impact, the Government has been quick to launch a suite of state-backed support initiatives to assist struggling companies in the context of this crisis. However, the severity of the economic impact presents very challenging circumstances for company directors, particularly those of companies that may not be adequately capitalised to support a sustained period of inactivity.
Van Dessel continued:
While the figures show a decrease in insolvencies for this period, changes in circumstances mean that we can reasonably expect an increase in Q2. It is arguable that the current crisis has created the most significant challenge for otherwise viable Irish companies and it may therefore be the case that as the year progresses, the Irish business community will experience an increase in the utilisation of Examinership as a process to facilitate corporate restructurings in companies with a reasonable prospect of survival. However, as things stand the mechanics of many insolvency processes are hindered by the current lockdown. An example of this is the meeting of creditors, which are an integral part of most insolvency processes, including personal insolvencies. In light of the current crisis I think it would be an opportune time to amend the requirement for creditors meetings to be “only physical” and for a virtual option to be introduced.
What will undoubtedly be a key theme is the protection of employment during a very challenging period for the Irish economy. Before this pandemic, vulnerable companies were advised to get external professional advice as soon as they became aware that their company was facing financial challenges and in light of the current crisis, that advice remains valid. Adopting a strategy of early action will always provide businesses and their directors with the greatest suite of options, from refinance to restructuring, and will have them ready to act quickly once the next ‘new normal’ materialises.
Age profile analysis
24% (39) of the insolvencies recorded during the first quarter of 2020 relate to companies less than five years old, 25% (40) are in the 5-10 years bracket, 24% (39) are in the 10-20 years bracket, 8% (13) are in the 20-30 years bracket, 8% (13) are in the 30-40 years bracket and 9% (15) are over 40 years old. Similar to the findings recorded in previous periods, the age profile indicates that the majority of insolvent companies are in the 5-20 years old bracket rather than in the start-up sector, which 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. 134 CVLs were recorded in Q1 2020 representing 84% (142/73% in Q1 2019) of overall insolvency numbers.
The 2019 insolvency statistics recorded a year on year increase in the number of court liquidation appointments. However, the figures for Q1 2020, compared to Q1 2019, depict a significant decrease of 37% in the number of court liquidations, with only 5 instances recorded in Q1 2020.
Corporate receivership has experienced a steady decline in recent years and this continued into the first quarter of 2020, when 15 companies (9% of total insolvencies) entered receivership. This compares with 21 (11%) recorded in Q1 2019. Some of 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 as the year progresses and 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.
The Examinership process, which despite its proven effectiveness as a rescue option has typically experienced very low levels of uptake, has once again recorded a decrease in Q1 2020, with only five examinership petitions filed, versus eight in Q1 2019. On a positive note, in response to the ‘lockdown’, the Court Service of Ireland has confirmed that examinership applications can be made by appointment with the Central Office of the High Court. Directors who might be considering examinership as a solution are reminded that there is a notable amount of work to be done in advance of the court hearing and it is likely to take a number of weeks to prepare a robust application.
Geographically, the highest number of corporate insolvencies in the period was recorded in Leinster, with 68% of total appointments and consistent with the same period last year. Munster had 23% of appointments, Connaught 4%, and Ulster also had 4%. 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 dropped by 17% from 130 in Q1 2019 to 108 in Q1 2020; in Munster the number also decreased marginally from 39 in 2019 to 37 in 2020 (5%); Connaught recorded a significant decline from 21 in 2019 to 7 in 2020 (67%); and Ulster remained relatively constant with seven insolvencies recorded in 2020, compared to five in 2019.
Looking at the top four industry sectors, the service industry once again recorded the highest number of corporate insolvencies in Q1 2020 with 54 appointments (34% of total insolvencies). Financial services companies accounted for the largest number with 20, compared to 17 financial services insolvencies in Q1 2019.
Personal services companies featured prominently with 15 insolvencies recorded during the quarter. Nine operated in the health and fitness industry and six were beauty services providers. The real estate and property services companies recorded four insolvencies in Q1 2020 representing a significant decrease of 66% from the same period in 2019.
The retail sector recorded the second highest level of insolvencies with 34 incidences representing 21% of the total number. However, 11 of the 34 insolvencies refer to related entities within one group. Taking this group as one entity, the figure for Q1 2020 for the retail sector would be 23.
The hospitality sector recorded 23 incidences, representing 14% of the total number of insolvencies. 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 15 insolvencies (9% of total). The level of insolvencies in this sector has decreased notably year on year, with the numbers dropping by 48% compared to Q1 2019 (29).
Other notable movements in insolvency numbers have been observed in the wholesale sector, which recorded an increase of 150% from a low of four corporate insolvencies in Q1 2019 to 10 in Q1 2020, and in the motor sector, which recorded a decrease from seven corporate insolvencies in 2019 to two in 2020.
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