8 out of 10 companies entering insolvency in Q1 2019 established more than five years ago – Deloitte

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8 out of 10 companies entering insolvency in Q1 2019 established more than five years ago – Deloitte

The latest insolvency statistics published by Deloitte show that the total number of corporate insolvencies in Q1 2019 was 195, a marginal increase when compared to Q1 2018, when 188 corporate insolvencies were recorded.

Further analysis of the insolvencies in the first quarter of the year reveal that eight out of ten companies (154, 79%) entering an insolvency process were incorporated more than five years ago.

21% (41) of all insolvencies recorded in this quarter relate to companies less than five years old, 27% (52) are in the 5-10 years bracket, 26% (51) are in the 10-20 years bracket, 11% (21) are in the 20-30 years bracket, 7% (14) are in the 30-40 years bracket and 8% (16) are over 40 years old. 

David Van Dessel, Partner, Financial Advisory, Deloitte commented: “Overall, the figures suggest that the steady decrease in corporate insolvencies observed over the last number of years may be levelling out.

“The figures indicate, as one would expect, that a notable percentage (21%) of the insolvencies recorded in Q1 2019 relate to ‘start-ups’ – those companies that are five years old or less. As a proportion however, this is lower than one might expect. The largest cohort of companies that enter a formal insolvency process are companies in the 5 - 20 year old age bracket. This may indicate that lingering debt issues and an inability to turnaround poor trading results encountered as a result of the economic crash in 2008 and subsequent years are still having an impact. It is also interesting to note that all corporate receiverships recorded in Q1 2019 (21) occurred in companies over 10 years old, further pointing to the trend of lingering legacy bank debt continuing to play a prominent role in corporate insolvencies.”

Types of insolvencies

The continued prevalence of creditors’ voluntary liquidations (CVLs) was apparent in the first quarter of the year. They accounted for 142 or 73% of the total number of corporate insolvencies in the quarter.

The number of court liquidations has nearly doubled from 13 cases in Q1 2018 to 24 (12%) in Q1 2019, while corporate receiverships have declined significantly to 21 from 52 in the same period last year. This process has shifted from being the second most common insolvency process in Ireland to the third, with a decrease of 60% when compared to Q1 2018 figures.

Finally, examinership continues to remain at extremely low levels with only 8 appointments (4%) in Q1 2019.

Mr Van Dessel commented: “The persistent high incidence of insolvent liquidation, namely creditors’ voluntary liquidations and court liquidations, particularly when considered against the decrease in corporate receiverships, would suggest that difficult trading conditions and other company specific factors are beginning to replace legacy bank debt as the leading cause of corporate insolvency in Ireland. However, it must be borne in mind that legacy bank debt remains an overhanging issue in the domestic economy and an increase in corporate receivership appointments throughout 2019, continuing into 2020, is broadly anticipated, as recent acquirers of non-performing loan books (NPLs) commence enforcing security in relation to the corporate loans acquired. A postponement of this enforcement activity to the second half of 2019 was not unexpected as acquirers of NPLs complete the migration of the loans to their own systems and initiate engagement with borrowers. It is worth noting that the directors of some corporate entities have taken the necessary steps to wind-up their companies post-receivership, which they are obliged to do as directors of an insolvent entity and those incidences would be included in the CVL statistic.”

Regional focus

Geographically, the incidence of corporate insolvencies has remained broadly consistent over the course of the last year. The highest number of corporate insolvencies recorded in Q1 2019 relate to Leinster 130, with Munster 39, Connaught 21 and 5 in Ulster[i]. This pattern is generally consistent with previously recorded figures.

Industry focus

Looking at the insolvencies through an industry lens, the report of industries most affected by insolvency is in line with previous quarters. 

The services sector once again recorded the highest level of insolvencies accounting for 42% (82) of corporate insolvencies in Q1 2019. Within this sector, companies operating in the financial sector have been the most prone to insolvency during the period. Out of 82 corporate insolvencies recorded in the services sector in Q1 2019, 17 related to companies operating in the financial services sector. This is consistent with the overall statistics recorded in 2018.  Real estate and property services is the second most common services sector affected by insolvency during Q1 2019 with 12 insolvencies noted. Other notable service sectors affected by insolvency in Q1 2019 include Advertising and publishing (10), Health and Beauty (9) and Trades (6).

The construction sector once again followed the services sector as having the second highest level of corporate insolvencies in Q1 2019, with a total of 29 (15% of insolvencies recorded in Q1 2019). This statistic does however show a notable decrease on the same period in 2018 when insolvencies of construction companies totalled 43 and accounted for 24% of corporate insolvencies in that period.

The hospitality and retail industry both represented 13% respectively of all insolvencies recorded in Q1 2019 with 25 insolvencies recorded in respect of each.

Of note, the motor retail sector saw an increase in the number of insolvencies in Q1 2019 to six, relative to Q1 2018 when only three motor retail company insolvencies were recorded.  An increase in insolvencies in this sector may be linked to the drop in new car sales recorded in the first quarter of 2019. Shifts in environmental policy, as well as a general easing off in new car sales, are likely to play a role in the changing dynamics within the industry.

Lastly, a total of 28 insolvencies were recorded in the manufacturing, IT, transport and wholesale sectors, similar to the number of insolvencies recorded for the same sectors in the first quarter of 2018.

Mr Van Dessel concluded: “Looking towards the remainder of 2019, there is little evidence to suggest that the total corporate insolvency figure will not remain in or around 800 for the full year, which is more than double the incidence of corporate insolvency experienced before the recession of 2008; however that is leaving aside the unknown that is Brexit.

“Finally, it is worth pointing out that regardless of the age profile of the company, the industry it operates in and the underlying nature of the difficulties it is encountering, the importance of seeking the appropriate advice at an early stage cannot be understated. There are many options, both formal and informal, available to directors of struggling companies and it may be possible to implement a viable turnaround strategy if advices are sought in good time. In circumstances where this is not possible, early advice is still recommended so that an appropriate wind-up strategy can be devised and put in place to minimise the risk and costs for the company, its creditors and stakeholders.”

Article Published: 14/05/2019