21% decrease in corporate insolvencies in Q3 2019 compared with Q3 2018 has been saved
21% decrease in corporate insolvencies in Q3 2019 compared with Q3 2018
New figures released by Deloitte on the latest insolvency statistics show another drop in corporate insolvencies, continuing a steady trend in recent years. In Q3 YTD 2019 the level of insolvencies stood at 439. When compared with Q3 YTD 2018 (557) this represents a decrease of 21%, a marginally higher decrease than the 18% recorded on Q3 YTD 2017 figures.
78% (343) of insolvent companies were incorporated more than five years ago and this suggests that the majority do not relate to ‘start-ups’, which entities are generally considered to be less than five years in business.
A little over a fifth of companies (22% or 96 companies) that became insolvent during the nine month period relate to companies less than five years old, 23% (100) are in the 5-10 years bracket, 25% (112) are in the 10-20 years bracket, 16% (72) are in the 20-30 years bracket, 7% (29) are in the 30-40 years bracket and 7% (30) are over 40 years old.
Types of Insolvencies
A more detailed analysis of the figures recorded show:
- Creditors’ voluntary liquidation (CVLs) accounted for the majority, with 280 CVL insolvencies recorded in the period (64%). In the comparable period in 2018, creditors’ voluntary liquidations accounted for 379 (68%) of all incidences recorded.
- The Court liquidation (CL) process has increased with 50 court appointments or wind up petitions recorded in the period. In Q3 YTD 2019, the CL process represented 11% of total insolvencies and is a significant increase on Q3 2018 YTD figures when 39 court appointments or wind up petitions were recorded representing 7% of overall insolvencies in that period.
- Receivership appointments over corporates and corporate assets (84) have remained broadly consistent with the same period last year (106) when analysed as a percentage of overall insolvencies (19%). The figures suggest that the decline in Receivership activity recorded in recent years has now levelled out and a further decline in corporate Receivership activity over the next year is not generally anticipated as acquirers of loan books in 2018 and 2019 work through non-performing loans and enforce over company assets on foot of charges held. Most of the activity has continued to develop in the personally held real estate sector, which includes all property segments, such as industrial, office spaces, retail and residential.
- Examinership as a percentage of overall Corporate insolvencies has remained consistent with the same period for 2018 with 25 appointments (6%) recorded in Q3 YTD 2019 versus 33 (6%) recorded in Q3 YTD 2018. The persistent low levels of examinership appointments recorded may reflect, amongst a variety of other factors, an unwillingness of management to take early action to restructure a business in difficulty.
Commenting on the figures, David Van Dessel, Partner, Financial Advisory at Deloitte said,
The statistics continue to suggest a significant tendency to liquidate companies in difficulty and in some cases to take the risk of attempting to trade out of insolvency. Where a company ultimately fails and enters an insolvent liquidation process, the consequences for the Directors of adopting the latter approach can be serious, including the possibility of a restriction or disqualification order, or the possible imposition of personal liability for corporate debt in certain circumstances. Seeking advice at the first signs of difficulty and exploring all options available would significantly reduce a Director’s risk of culpability in circumstances where a business ultimately fails and enters an insolvent liquidation process.
Taking a geographical analysis of the figures:
- The highest number of corporate insolvencies in Q3 2019 YTD was recorded in Leinster with 62% (273) of total appointments, (a decrease on the comparable period in 2018 where Leinster had 68%.)
- Munster recorded 24% compared to 20% for the same period in Q3 YTD 2018.
- Connacht remained in line with Q3 YTD 2018 levels at 9% of total insolvencies.
- Ulster recorded 4% of total insolvency figures. This is a marginal increase on Q3 YTD 2018 statistics when 2% of total insolvencies were recorded in Ulster. In general, the geographical spread is consistent with the prior year to date.
The services industry once again recorded the highest level of insolvencies with 168 (38%) services company insolvencies recorded. Within the services industry, as recorded in H1 2019, companies operating in the financial services sector have been the most affected by insolvency with 50 insolvencies recorded during the period. Real estate service companies recorded 29 insolvencies; professional services companies recorded 16; advertising companies recorded 14; health and medical related companies recorded 8 and trade companies recorded 6. There were 45 other services companies affected by insolvencies across a broad range of sub sectors to include IT, engineering, recruitment, beauty, agricultural, security, recreational and leisure.
The construction industry recorded the second highest level of insolvencies during the period with 72 insolvency incidences (16%) noted. Insolvencies in this sector as a percentage of overall corporate failures has decreased marginally when compared to the same period last year when 100 (18%) insolvencies were recorded. The continued high level of insolvencies within the construction industry would suggest that certain companies operating within the sector are impacted by market pressures and price competitiveness, in addition to legacy issues from the 2008 financial crisis. However, a growth and strengthening of the sector has been observed during the first half of 2019, which led to an increase in demand for commercial and residential space. Consequently, this may have contributed to the decrease in insolvencies during the first three quarters of 2019, compared to the overall number of business failures to date in 2019.
Commenting on the construction sector, Van Dessel said,
Whilst demand for construction services had been relatively constant over the course of 2018, it is worth noting that the latest Ulster Bank Purchasing Managers Index (PMI) published in September has recorded the first contraction in the sector in over six years which is largely driven by a fall in commercial activity whilst growth in housing construction activity has continued. While current market conditions show margins for contractors to be extremely challenging, competition for quality contractors is anticipated to be high and together with a softening in land values should lead to a potential improvement in margins.
The hospitality sector recorded 62 (14%) insolvencies during the period. This compares with 61 (11%) insolvencies recorded during the same period in 2018 which represents a slight increase as a percentage of overall insolvencies years on year. The fact that the number of hospitality insolvencies has remained the same despite an overall drop in corporate insolvencies of 21% points to particular struggles specific to this sector.
The retail sector decreased both in number terms but also as a percentage of total insolvencies. There were 63 insolvencies recorded in that sector (14%). This compares with 91 (16%) recorded in the same period in 2018.
The manufacturing sector has also decreased year on year as a percentage of overall business failures. In Q3 YTD 2018, 41 manufacturing firms were recorded as being insolvent representing 7% of overall insolvency figures. This has decreased to 25 insolvencies (6%) recorded in the period under review in the manufacturing space.
The IT, motor, transport and wholesale sectors have all remained broadly consistent with levels recorded in the same period for 2018.
Concluding Van Dessel said,
Looking forward to the final quarter of 2019, all indicators would suggest that figures will continue to remain steady towards the end of the year with total insolvency incidences expected in the region of 600. Business sentiment remains cautious and a recent survey published by AIB suggests that 50% of SMEs in Ireland have cancelled or deferred potential investment in their business as a result of Brexit uncertainty.
While the negative sentiment associated with Brexit generally is already preventing businesses from proceeding with investment and expansion plans, it is unlikely that this negative sentiment alone will have a direct impact on whether companies enter insolvency or not.
A hard Brexit scenario would however impact on insolvency levels in the short term, and could change the business eco-system to such an extent that the business models of some companies might no longer be viable, due to factors such as tariffs, logistics, regulatory approval and currency exchange rates and more generally the ‘domino effect’ that is inevitably caused by the bad debt that arises when a company fails.
About the Analysis
The analysis completed focuses on incidences of formal corporate insolvency and restructuring processes in Ireland and does not factor in insolvent corporates that have failed and have been involuntarily struck off the Companies Office Register due to non-filing of annual returns. In addition, other market analysis providers may take into account Members Voluntary Liquidations (MVL) within their insolvency total which would be incorrect as an MVL is a solvent liquidation and an insolvent company is precluded from entering the MVL process. Statistics extracted from the CRO Gazette indicate that in the period under review, 4,023 companies have been involuntarily struck off and another 1,193 are strike off listed. It is likely that a significant level of involuntary strike offs recorded relate to business failures where a formal insolvency procedure was not progressed.
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310 corporate insolvencies in total in H1 2019