Corporate insolvencies in first half of 2017 total 454
70% of examinerships are successful
The latest insolvency statistics published by Deloitte show corporate insolvencies in H1 2017 have totalled 454. When compared with the same period in 2016 this is a decrease of 11% and suggests that appointments continue to level out somewhat.
A closer look at the details shows that of these 454 corporate insolvencies, creditors’ voluntary liquidations accounted for the majority, with 268 recorded in the period (59%). This is down 14% from the same period last year where creditors’ voluntary liquidations accounted for 313 of the appointments recorded. Receiverships accounted for 148 (33%) of the total corporate insolvencies in H1 2017, down 10% on the same period last year. This mix of insolvencies is typical of prior periods.
There were 24 court liquidator appointments in the current period, down by only 1 from the same period last year. In the majority of these cases the Revenue Commissioners took the petition to wind up.
Examinerships continue to remain at disappointingly low levels and H1 2017 saw only 14 examiners appointed, just 3% of the 454 corporate insolvencies. This level of examinership take-up is consistent with the comparable periods and shows that the introduction of new legislation in early 2014 has not had the intended effect of encouraging more struggling SMEs to avail of this cost-effective and accessible option. Commenting on this matter David Van Dessel, Partner in Deloitte Restructuring Services stated that “early action by business owners is imperative for successful restructuring. Company directors are implored to seek assistance in addressing their financial difficulties before it’s too late to take remedial action.” For smaller SMEs there are still options to explore this type of restructuring through use of the “super-lite examinership”, s.450 schemes of arrangement. Typically this is a less costly option that involves less court involvement but affords struggling companies a real chance at survival.
Looking at the statistics we can easily see that the process is a success for the majority of companies who take this early action. In 2016, of the 15 appointments in total, 11 companies have successfully exited the process, a success rate of 73%. Similarly in 2017 of the 14 appointments in H1, 10 have successfully exited examinership (70%). Of the remaining four companies, a liquidator has been appointed to three and one remains in examinership.
Companies who deal with their historical debts through a restructuring process will emerge with stronger balance sheets, which in turn opens doors for them to debt and equity providers, enabling them to grow their businesses.
As demonstrated in the quarterly Deloitte Alternative Lender Deal Tracker, Ireland has seen the emergence of the alternative lender market. Alternative lenders provide unitranche, mezzanine and other forms of higher risk capital, which has led to an increase in the availability of capital to SMEs to facilitate consensual or non-consensual restructurings. Additionally, the institutional private equity sector has recently become more active, looking for investment opportunities in Ireland and not being afraid to get involved in restructurings. An example of this would be Causeway Capital’s investment in Celtic Linen which led to the successful exit of their examinership process.
Geographically, the highest number of corporate insolvencies in the period was recorded in Leinster with 69% of total appointments. This is consistent with the same period last year where Leinster had approximately 67% of all corporate insolvency appointments. In the current period Munster had 20% of appointments, Connaught 11% and Ulster less than 1%, again showing consistency with the same period last year.
Looking at the ‘Top Five’ industry sectors, it was the service industry which recorded the most insolvencies in H1 2017 with 170 appointments (37%). This is a 26% increase on the same period in 2016 when 135 appointments were recorded. The construction industry recorded the second highest level of appointments with 65 (14%). This is a decrease of 27% from H1 2016. In previous years, the construction industry consistently had the largest number of insolvency appointments and it wasn’t until 2015 that the service industry overtook it for most appointments recorded. This indicates that the level of corporate failure in the construction industry is now starting to slow down. The third slot was taken by the retail sector where there were 60 insolvencies, 13% of the total, an increase of 2 from the prior period. The hospitality sector is fourth with 42 insolvencies, 9% of the total and down 19% from last year. Finally in fifth, the manufacturing sector recorded 14 insolvencies in the period which represented a 61% decrease on the same period in 2016 (36 cases).
Looking generally at recent results it may be that we are now entering a period where the total number of corporate insolvencies begins to level out somewhat. Looking at the overall trend of each year since 2007, the highest number of insolvencies was seen in 2012 with 1,684 and the number recorded each year has been declining consistently since then. While we aren’t seeing the low levels of insolvencies recorded during the so-called Celtic Tiger years, it may be that those particularly low numbers seen in 2007 and 2008 were outliers themselves and the levels of this year and last are a more realistic baseline to compare future levels to. This is reflected in the low percentage difference between the current period and the same period in 2016.