36% decrease in Corporate Insolvency YTD Q3 2021 - Deloitte has been saved
36% decrease in Corporate Insolvency YTD Q3 2021 - Deloitte
Corporate Insolvency Statistics Q3 2021
The total number of corporate insolvencies recorded in Ireland year-to-date (YTD) as of 30 September 2021 stands at 278, according to the latest insolvency statistics published by Deloitte. This represents a substantial decrease of 36% from the same period in 2020, when the total number recorded was 431.
On a quarterly basis, a total of 109 corporate insolvencies were recorded during Q3 2021, which is a notable increase of 88% when compared to Q2 2021, when there were only 58 incidents.
While there was a significant increase in insolvency activity between Q2 and Q3, it is evident that the full effect of Covid-19 restrictions on the Irish economy has still yet to materialise in terms of the total number of corporate insolvencies. With the anticipated removal of government supports after the year-end and beyond, the first half of 2022 might begin to reveal the true economic impact on the SME sector, according to Deloitte.
Commenting on the figures, David Van Dessel, Partner, Financial Advisory at Deloitte said:
“We are still in a position where Covid supports and creditor forbearance are probably holding back the tide on corporate insolvencies. As we enter the final quarter of 2021, the welcome introduction of the Small Company Administrative Rescue Process, or SCARP, presents SMEs with a realistic alternative to the underutilised Examinership process. The SCARP allows directors to maintain control of their business and can be commenced and completed without the automatic need for attendance at court, which should make it appealing to many SME directors who believe their business is viable, but which perhaps fell into financial difficulty due to the pandemic.
“Our hope is that the SCARP process will ease the burden on many SMEs in difficulty as the safety net of government supports is removed.”
The services sector once again recorded the highest number of corporate insolvencies YTD (Q1 2021 to Q3 2021) with 129 insolvencies, representing 46% of total insolvencies recorded so far this year. The number of insolvencies recorded in the services sector has decreased by 16% year-on-year, with 154 recorded during the same period last year (Q1 2020 to Q3 2020), against a backdrop of a 36% decrease in overall insolvency activity year-on-year. On a quarterly basis, there were 56 insolvencies recorded in the services sector in Q3 2021, which represents over half of all insolvencies in the quarter.
Within the services sector, financial services companies accounted for 28 of the 56 insolvencies recorded in Q3 (50%). The health, fitness and beauty sector featured prominently again, with 21 insolvencies recorded in Q3 2021 (38%). There were also 2 insolvencies each recorded in transport, agriculture and entertainment, with 1 insolvency recorded in education.
The construction sector recorded the second-largest number of insolvency appointments in Q3 2021, with 21 companies entering an insolvency process (19% of total insolvencies recorded in the quarter). This brings the total insolvency appointments in the construction sector so far in 2021 to 52, which is a 16% increase compared to the level during the same period in 2020, when the number of insolvencies in construction stood at 45.
“Interestingly, construction is the only sector that has recorded an increase year-on-year, which could signal an upward trend in construction insolvencies as we see the impact on margin of supply shortages,” said Van Dessel.
The hospitality sector has recorded the joint-third-highest level of insolvencies so far in 2021 at 26, representing 9% of the total number. Given the impact of Covid-19 restrictions on the hospitality sector, this is surprisingly lower than the level of insolvencies recorded in that sector during the same period in 2020, when 70 insolvencies were recorded – a decrease of 63%. Of the 26 insolvencies recorded in hospitality YTD, 12 (46%) were in the food sector (i.e. restaurants and catering companies), 9 (35%) were hotels or companies that provide accommodation and, surprisingly, just 2 insolvencies have been recorded for pubs so far in 2021.
The retail sector has also recorded 26 insolvencies so far in 2021; however, only 6 of these occurred in Q3. The level of insolvencies in this sector has decreased notably compared with 2020, when a total of 88 insolvencies were recorded by the end of Q3 – a decrease of 70%. More insolvencies were recorded for companies in the retail sector in Q3 2020 alone (37) than in 2021 so far (26).
“However, Retail Excellence Ireland recently revealed that that the majority of its members are struggling to have meaningful conversations with their landlords about rent arrears,” said Van Dessel. “Going forward, this issue could give rise to an increase in insolvency activity in the retail sector.”
The manufacturing sector has recorded 21 insolvency events YTD, remaining relatively consistent on a year-to-year basis, as the number has only slightly decreased from 25 incidents recorded in the same period in 2020.
Finally, the transport sector has recorded 11 insolvencies so far in 2021, just 1 less than the same period in 2020.
Age profile analysis
From an age profile perspective, 13% (35) of the insolvencies recorded YTD relate to companies less than five years old; 22% (60) are in the 5-10 years bracket; 31% (87) are in the 10-20 years bracket; 19% (53) are in the 20-30 years bracket; 6% (18) are in the 30-40 years bracket; and 9% (25) are over 40 years old. Similar to previous periods, the age profile indicates that there has not been a significant spike in insolvencies among start-up companies (companies less than 5 years old), which is generally considered to be a high-risk phase.
The (10-year) time window with the most insolvencies recorded is 0-10 years, which accounts for 35% of all insolvencies YTD. This is closely followed by the 10-20 year bracket, which accounts for 31% of all corporate insolvencies. Therefore, almost two-thirds of insolvencies recorded YTD occurred in companies that were incorporated within the last 20 years, while only one-third of insolvencies related to companies incorporated more than 20 years ago.
“The level of insolvencies in the 0-10 year and 10-20 year brackets might suggest that there is equal vulnerability between those two timelines, perhaps with the 0-10 year bracket slightly more at risk from over-expansion within constrained capital resources; however, this is just a snapshot and shouldn’t be over analysed” said Van Dessel.
Geographically, the highest number of corporate insolvencies YTD was recorded in Leinster, with 62% (172) of total insolvencies. Munster accounted for 26% (72) of insolvencies, with Connaught making up 8% (21) and Ulster making up 5% (13).
The rate of insolvencies in Leinster has reduced in comparison to the same period in 2020, when 71% (305) of insolvencies recorded were in Leinster. This is roughly in line with the overall reduction in insolvencies observed year-on-year. Munster, on the other hand, bucked the trend, as the number of insolvencies recorded there remained in line with last year’s figures, 75 compared to 72, unlike the significant reduction seen for the rest of the country. The rate of insolvencies in Connaught and Ulster has remained low, in line with 2020 figures.
As in previous periods, Creditors’ Voluntary Liquidations (CVL) accounted for the majority of insolvencies YTD at 193, representing 69% of total insolvencies in the period.
From a quarterly perspective there was a significant rise in the number of CVLs, with 84 CVLs occurring in Q3 2021, compared to just 31 in Q2 2021 – an increase of 171%. Given the overall increase in total insolvencies in Q3 2021 when compared to Q2 2021, it is unsurprising that the majority of the increase has come from the CVL space, according to Van Dessel.
Corporate Receivership saw a marginal increase in activity YTD, with 59 (21% of all insolvencies) recorded in this period, compared to 52 (12% of all insolvencies) recorded during the same period in 2020.
There was just one Court Liquidation appointment in Q3 2021, bringing the total number of Court Liquidations in 2021 to 15. However, Deloitte notes that there were 31 ‘petitions to wind up’ presented to the Court in July and August which have not yet materialised into appointments.
“Taking a prudent outlook, we have not included these petitions in our figures; however, it is entirely possible that a number of these petitions will lead to insolvency events in Q4,” said Van Dessel. “The reduced level of appointments in Q3 could be as a result of the High Court vacation period of August and September.”
The figures reflect a year-on-year decrease, with 37 Court Liquidations recorded during the first three quarters of 2020, compared to 15 YTD 2021.
The number of Examinership appointments has, similar to previous years, remained very low. There have been just 11 Examinerships recorded YTD 2021, compared to 24 during the same period in 2020. However, this is largely in line with the overall reduction in insolvency activity, with Examinerships accounting for 4% in 2021 so far, compared with 6% during the same period in 2020.
This low level of Examinership is expected to continue or, potentially, to further reduce, due to the recent introduction of the new Small Company Administrative Rescue Process (SCARP).
“The SCARP process will be more appealing to SMEs as it embraces the concept of a ‘second chance’ and can be commenced and completed without any attendance in court, making it more cost-efficient,” said Van Dessel. “It is possible that some companies are holding off for the introduction of this new process, which is expected to be introduced before the end of the year.”
Issued by Murray on behalf of Deloitte Ireland
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