Deloitte warns that the full effects of Covid-19 on the Irish economy have not yet fully materialised.
A total of 169 corporate insolvencies were recorded in Ireland in the first half of 2021, according to the latest insolvency statistics published by Deloitte. This represents a decrease of 38pc from H1 2020, when 273 insolvencies were recorded.
On a quarterly basis, a total of 58 corporate insolvency incidents were recorded during Q2 2021, which was a marked reduction of 48pc when compared to Q1 2021, when there were 111 incidents.
“The first half of 2022 will paint a more accurate picture of how the Covid-19 pandemic has influenced the economy and the knock-on effect on our SME sector”.
“While the reasons behind the difference in corporate insolvency activity between Q1 and Q2 2021 are unclear, it is generally accepted that the full effects of Covid-19 on the Irish economy have not fully materialised in terms of corporate insolvencies,” said David Van Dessel, partner, Financial Advisory at Deloitte.
“The continued low level of corporate insolvency activity is likely to be influenced by the broad range of government measures introduced to support businesses during the pandemic.
“The current crisis has created a significant challenge for many otherwise viable Irish companies and we anticipate that the first half of 2022 will paint a more accurate picture of how the Covid-19 pandemic has influenced the economy and the knock-on effect on our SME sector.”
Insolvencies by sector
As in previous reports, the Services sector recorded the highest number of corporate insolvencies in H1 2021 at 73, representing 43pc of total insolvencies recorded during the period. This is a decrease of 23pc when compared to H1 2020, when the Services sector experienced 95 insolvencies.
Within the Services sector, Financial Services experienced 51 insolvencies, representing 70pc of all insolvencies recorded in the Services sector in H1. Education saw 4 insolvencies during the period (5pc), followed by Utility & Gas Supply with 3 insolvencies (4pc), Sporting Activities with 2 insolvencies (3pc), while Agriculture, Betting, Beauty, Hairdressing, IT, Medical Practice, Mining and Public Administration all experienced 1 insolvency, each representing 1pc of all insolvencies in the sector.
Outside of the Services sector, the Construction sector recorded 31 insolvencies during H1, representing 18pc of total insolvencies recorded during the period. This is an increase of 15pc when compared to H1 2020, when a total of 27 insolvencies were recorded in the Construction sector.
The Retail sector recorded just 20 insolvencies, representing 12pc of all insolvencies recorded during H1. This is a notable decrease of 61pc when compared to H1 2020, when 51 insolvency incidents were registered in the sector.
The Hospitality sector recorded 17 insolvencies in H1, representing 10pc of overall insolvencies during the period. This is a sharp decline of 65pc compared to H1 2020, when 48 insolvencies were recorded in the sector. Of the 17 Hospitality sector insolvencies reported so far in 2021, 10 related to hotels and inns, compared to 16 in H1 2020; 5 related to companies operating in the food services sector (i.e. restaurants & catering companies), compared to 29 in H1 2020; and only 2 insolvencies were recorded for companies operating as bars or pubs, compared to 3 in H1 2020.
“Hospitality has been one of the hardest-hit sectors by the pandemic, including of course the restaurant and pub sector who continue to rely on outdoor dining,” said Van Dessel. “While mobile ordering and take-away have been widely adopted by many restaurants, some may fail to reopen their doors. With these areas particularly vulnerable to ongoing government lockdown measures and restrictions, as we have seen in recent days, we may see increased levels of failures, particularly after the cessation of government subsidies.”
The Manufacturing sector recorded 12 insolvencies in H1, representing 7pc of total insolvencies. The Transport sector recorded 8 insolvencies (5pc of total) and the Wholesale sector recorded 5 (3pc of total). The level of insolvencies recorded in these sectors in H1 2021 had all decreased compared to H1 2020.
From an age profile perspective, only 14pc (23) of insolvencies recorded during the first half of 2021 relate to companies less than five years old; 16pc (27) are in the 5-10 years bracket; 31pc (52) are in the 10-20 years bracket; 21pc (36) are in the 20-30 years bracket; 8pc (14) are in the 30-40-years bracket; and 10pc (17) are over 40 years old
Geographically, the highest number of corporate insolvencies in the first half of 2021 was recorded in Leinster, with 59pc of total insolvencies (100). 26pc of total insolvencies were recorded in Munster (44), 9pc in Connaught (15) and 6pc in Ulster (10).
Compared to H1 2020, the number of insolvencies has dropped in Leinster & Munster, while increasing in Connacht and Ulster.
A new era for SME corporate rescue
Creditors’ Voluntary Liquidations (CVLs) accounted for the majority of insolvencies in the first half of 2021. A total of 109 CVLs were recorded in H1 2021, representing 64pc of overall insolvencies during H1 2021; this is down from 214 in H1 2020, a decrease of 49pc.
“We are on the cusp of a new age for SME Corporate Rescue, with the imminent introduction of new Corporate Rescue legislation specifically aimed at SMEs”
Corporate Receivership saw the only increase in activity for the first half of 2021, with 37 (22pc) recorded in this period, compared to 27 (10pc) recorded in H1 2020.
The level of High Court wind-up petitions declined by 20pc, with 20 (12pc of total insolvencies) recorded in H1 2021, compared to 25 in H1 2020. This may be the result of increased levels of debt introduced in respect of statutory demands and winding-up petitions due to the Covid-19 pandemic, Deloitte noted.
The number of Examinership appointments has, similarly to previous years, remained very low. There were just 3 Examinership events recorded in H1 2021, compared to 7 in the same period in 2020.
“We are on the cusp of a new age for SME Corporate Rescue, with the imminent introduction of new Corporate Rescue legislation specifically aimed at SMEs,” Van Dessel noted. “30 years after the introduction of the Examinership process, with such low levels of Examinership activity, the Government is to be commended for the imminent introduction of the Small Company Administrative Rescue Process, or SCARP. As part of this process, directors maintain control of the business and the process can be commenced and completed without need for a court application.
“We would advise any business in difficulty to ensure you keep your creditors informed; maintain proper books of account and regularly review the financial performance of the company by preparing management accounts on a regular basis; and, perhaps most importantly, seek professional advice at the earliest opportunity to ensure you have sufficient time to plan and implement a robust recovery strategy.”
Comment: While the economy is slowly starting to recover for some sectors, other sectors still remain closed and in limbo. We speak with SMEs on a daily basis and while there is cautious optimism about the future there is still a concern about what is coming next.