Corporate insolvencies to end of Q3 2018 total 557, down 67% from the peak recorded during the Recession has been saved
Corporate insolvencies to end of Q3 2018 total 557, down 67% from the peak recorded during the Recession
A reflection of the growing economy in Ireland
The latest insolvency statistics published by Deloitte show that the number of Corporate insolvencies in 2018 is 557. This is a decrease of 15% from the same period in 2017, when a total of 657 appointments were recorded. A decline of 15% from the same period last year would suggest that Corporate insolvencies are continuing a downward trend at a relatively constant rate which is indicative of the improving economy. When viewed over the course of recent years, the figures indicate that the number of Corporate insolvencies in Ireland has dropped 67% from the peak recorded for the same period in 2012 (1,684).
A closer look at the detail indicates that of the total 557 Corporate insolvencies, Creditors’ voluntary Liquidations (CVLs) accounted for the majority, with 379 recorded in the period (68%). CVLs as a percentage of overall insolvencies for the same period in 2017 was recorded as 60% indicating that the prevalence of the CVL has slightly increased.
This can be contrasted with the Corporate Receivership process, the second most common Corporate insolvency process in Ireland, which as a percentage of overall Corporate insolvency appointments currently stands at 19% (106). On a pure numbers basis, Corporate Receiverships are down 48% from the same period last year, when there were 205. This is a sharp drop when contrasted with the steadier rate of decline (approx. 25%) recorded over the previous number of years. In addition, the shift of emphasis between the insolvency processes is an indication of the drop off in enforcement activity as private equity acquirers of non-performing loan (NPL) books in 2014 and 2015 have now worked through the majority of the distressed corporate assets in the portfolios acquired at that time. However, it should be borne in mind that the figures recorded above only refer to Corporate Receiverships and do not include non-corporate fixed charge Receiverships, where a Receiver is appointed over a specific asset that is owned by a non – corporate. It therefore only reflects a segment of overall Receivership activity. It should also be borne in mind that activity and trading in the distressed asset and NPL portfolio space continues to feature prominently and we would expect the level of Corporate Receiverships to increase in 2019 as the acquirers of new loan books sold in 2018 commence enforcement activity in relation to secured assets.
Against the backdrop of the increased prevalence of CVL’s and the decrease in Corporate Receivership, as a percentage of overall insolvencies, it is interesting to note the position in relation to Examinerships, Ireland’s formal corporate rescue process. Although appointments in this space appear to have increased in 2018 to a total of 33 or an increase of 17% year on year, the figure is somewhat distorted as 17 out of the 21 appointments recorded in Q3 refer to Companies related to the Bradley Pharmacy Group. Taking this into account, the level of Examinership appointments continues to remain at lower levels than one would anticipate in an economy with increased availability of risk capital. Given the positive turnaround prospects which the process can bring to insolvent businesses, the question has to be asked why more Directors of struggling Companies are not opting for Examinership and I would urge Directors of struggling Companies to get professional advice at the earliest opportunity to enhance their Company’s chances of survival.
The fourth and final Irish Corporate insolvency process, Court Liquidation, recorded an increase in activity of 26% from the same period last year. The incidence of this insolvency process as a percentage of overall insolvency appointments went from 4.72% (Q3 2017) to 7% (Q3 2018). Of the total number of Court Liquidations recorded, 15% were company own/self-petitions, 42% were third party creditor petitions and 43% were petitions made by the Revenue Commissioners.
Geographically, the highest number of Corporate insolvencies in the period was recorded in Leinster, with 67.5% of total appointments. This is consistent with the same period last year where Leinster had approximately 66% of all Corporate insolvency appointments. In the current period Munster had 20% of appointments, Connaught 10% and Ulster 2%. Compared to 2017, the number of appointments has dropped considerably in all regions except for Ulster, where 13 appointments where recorded in 2018, compared to 8 in 2017. In Leinster, the total number of Corporate insolvencies dropped by 12.5% from 430 in 2017 to 376 in 2018, in Munster the number decreased from 129 in 2017 to 112 in 2018 (13%), while Connaught recorded the most significant decline: 37%, from 90 in 2017 to 56 in 2018.
Looking at the 'top four' industry sectors, the service industry recorded for the third year in a row the highest number of insolvencies in 2018 with 128 appointments (23%). However, there is a significant decrease of 44% in the service industry compared to the same period in 2017, when 229 appointments were recorded, which is another clear indicator of an improving Irish economy.
The construction industry recorded the second highest level of insolvencies with 100 (18% of total), which represents an increase of 8.7% from the comparable period in 2017. Commenting on this matter Brendan O’Reilly, Associate Director in Deloitte Restructuring Services stated: “While construction activity continues to expand at an increasing pace, particularly in the housebuilding sector, the reality is that increased costs do not always result in maintained profitability. The increase in construction related insolvencies reflects that there are still legacy issues at play in the sector but also that profitability is being impacted due to cost inflation. This impact on profitability appears to be impacted by a combination of fixed price contracts in an inflationary environment along with the reduced margin available in private homes as sales price increases flatten. The Construction Industry Federation recently pointed at the price inflexibility of government contracts colliding with rising costs as being a primary factor. According to recent media coverage, profit margins are reported to be in the region of 1-1.5% across the Irish industry compared to an EU sector norm of 5%. This discrepancy is attributed to both public contracts and rising input costs relative to house sales values. While fixed price contracts, particularly when priced low, can be very attractive as they provide certainty from a cost point of view, it can cause other issues across the sector.”
The third slot was once more taken by the retail sector which recorded 91 insolvencies, 16% of the total and an increase of 18% from the same period in 2017. One of the many contributing factors for this development is the continuing steady shift in consumer sentiment towards the online retail space as well as the increasing costs associated with physical stores. Notwithstanding this, it is worth noting that this trend and analysis applies largely to a certain element of the retail sector only, with the popularity for the “shopping experience” associated with high-end retail names showing signs of increase.
The hospitality sector is fourth with 61 insolvencies, 11% of the total and a decrease of 11% from the 2017 comparative. A decrease in business failures in this sector is somewhat indicative of the steadily improving Irish tourism sector which correlates to the significant increase recorded in international visitors to Ireland in the last year.
Overall, we anticipate the number of total Corporate insolvencies to reach the 700 level by the end of the year which will continue the annual downward trend. The total number of insolvencies recorded in 2017 was 896, showing a decrease of 13% from the number reached in 2016. Taking a broad view of the results, the number of Corporate insolvencies continue their previously recorded downward trend. The pattern generally reflects the effect of a growing economy, both on a national and European level, as well as the improvement that has been made in addressing non-performing loans, which remains a ‘work in progress’. However, factors such as the uncertainty in relation to international trade agreements, the potential effects of Brexit and shifting consumer behavioural trends will continue to influence future figures.