Home Directory Deloitte Ireland LLP Significant decrease in level of corporate insolvencies in 2021 – Deloitte report

Significant decrease in level of corporate insolvencies in 2021 – Deloitte report

A total of 401 corporate insolvencies were recorded in Ireland in 2021, according to the latest insolvency statistics published by Deloitte.

This represents a substantial decrease of 30% from 2020, when the total number of corporate insolvencies recorded was 575.

On a quarterly basis, 123 corporate insolvencies were recorded in Q4 2021, the highest quarterly occurrence of 2021, compared to 111 insolvencies in Q1, 58 in Q2 and 109 in Q3.

Commenting on the latest figures, David Van Dessel, Partner, Financial Advisory at Deloitte said: “Whilst one might have anticipated an upward trend in insolvencies in 2021, given the significant number of businesses that have been directly or indirectly affected by the pandemic, it is evident that the full economic effect of Covid-19 on the Irish economy still has yet to fully materialise in terms of the total number of corporate insolvencies. While the likely timeframe is difficult to predict, in our view, the economic impact of the pandemic could materialise over a number of years, rather than as a ‘tsunami’ of corporate insolvencies in 2022, as the withdrawal of the Government’s Covid supports will impact struggling companies with varying intensities, depending on their business sector and the level of arrears they are carrying.”

Industry focus

The services industry once again recorded the highest number of corporate insolvencies, with 168 in 2021 (42% of total insolvencies). This is consistent with 2020, when 39% of all insolvencies recorded were in the services industry and also in 2019, when 37% were in the services industry.

Financial services and real estate companies accounted for the vast majority of insolvencies recorded within the services industry in 2021, with 114 (77 in financial services and 37 in real estate). This represents 28% of total insolvencies in 2021, compared with 19% in 2020. Health, fitness and beauty companies also featured prominently again, with 31 insolvencies recorded in 2021 (8% of total insolvencies), compared with 40 in 2020 (7%). 7 insolvencies were recorded in entertainment, 6 in agriculture, 5 in education and 5 in other services in 2021.

The construction industry recorded the second-highest number of corporate insolvencies in 2021 with 69, representing 17% of total insolvencies. This is a marginal increase from 2020, when 65 construction insolvencies were recorded (11% of total). Current construction insolvencies are notably lower than pre-pandemic levels – there were 94 insolvencies recorded in the construction industry in 2019 – despite the impact of cost inflation that was widely reported during 2021.

The hospitality industry recorded a low level of insolvencies in 2021 with just 31, representing 8% of the total number. This is a 65% decrease from 2020, when 88 corporate insolvencies were recorded in the hospitality sector and a 62% decrease from 2019, when 82 hospitality insolvencies were recorded.

The retail industry recorded 38 insolvencies in 2021, representing 9% of total insolvencies. This is a notable decrease of 62% when compared with 2020, when a total of 101 retail insolvencies were recorded. Similarly, when compared to 2019, retail insolvencies are down 56% from 87.

Van Dessel said: “One would expect the hospitality and retail sectors to be particularly affected by the pandemic, given the particular difficulties that companies in these sectors have faced and continue to face. However, when compared with both 2019 and 2020, 2021 has seen a notable decrease in insolvencies across both sectors. This strongly suggests that a number of companies in these sectors are relying on government Covid supports and/or creditor forbearance and, as a result, are delaying taking action to address a likely insolvency scenario. Therefore, it seems likely that we will see an increase in the number of hospitality and retail insolvencies, either in 2022 or beyond.”

The manufacturing industry recorded 28 insolvencies in 2021 (7% of total), remaining consistent with 2020 (37 insolvencies, 7% of total) and 2019 (38 insolvencies, 7% of total).

The transport industry recorded 42 insolvencies in 2021; however, this figure is somewhat distorted, as 27 of these insolvencies related to a single group of companies. If this were treated as one insolvency event, this would leave the transport industry with 16 insolvencies in 2021 (4% of total), which is consistent with the levels seen in 2020 (17 insolvencies, 3% of total) and 2019 (21 insolvencies, 3% of total). “It would appear that the effect of rising fuel prices has not, as yet, impacted transport sector insolvencies,” said Van Dessel.

The IT industry recorded 7 insolvencies in 2021 (2% of total) and continues to be the industry least-affected by the pandemic.

Age profile analysis

18% (71) of all companies which recorded corporate insolvencies during 2021 are less than five years old; 24% (97) are 5-10 years old; 29% (117) are 10-20 years old; 17% (68) are 20-30 years old; 5% (21) are 30-40 years old; and 7% (27) are over 40 years old.
In terms of age profile, there has not been a significant increase in insolvencies among companies in the 0-5 years age bracket, which is generally considered to be a high-risk phase, with these companies making up 20% of insolvencies in 2020 compared to 18% in 2021. The cohort of companies that saw the highest level of insolvencies during 2021 was companies in the 0-10 years bracket, accounting for 42% of all insolvencies. This was followed by the 10-20 years bracket, which represented 29% of all insolvencies.

Therefore, 71% of total insolvencies in 2021 were in relation to companies less than 20 years old, while just 29% related to companies older than 20 years. This is in line with 2020, when companies in the 0-20 years bracket accounted for 73% of all insolvencies and companies over 20 years old accounted for 27%.

Regional focus

264 corporate insolvencies were recorded in Leinster in 2021, making up 66% of total insolvencies. This is a 37% decrease compared to 2020, when 417 insolvencies (73% of total) were recorded in Leinster – a slightly higher reduction than the overall national reduction in corporate insolvency activity of 30%.

88 insolvencies were recorded in Munster in 2021 (22% of total insolvencies), a 9% decrease on 2020, when 97 insolvencies were recorded in Munster. 32 insolvencies were recorded in Connaught (8% of total insolvencies), which is in line with 2020 when 31 insolvencies were recorded in the region (5% of total). 17 insolvencies were recorded in Ulster (ROI only) (4% of total), in line with 2020 (30 insolvencies, 5% of total).

Insolvency processes

Creditors’ Voluntary Liquidations (CVLs) accounted for the majority of insolvencies in 2021 with 261 (65% of total), compared to 427 in 2020 (74% of total). The 39% reduction in CVL activity between 2020 and 2021 is greater than the overall reduction in corporate insolvency activity of 30%, and may reflect a continuing backlog of CVL activity, according to Deloitte.

78 corporate receiverships were recorded in 2021 (19% of total), an increase of 11% on 2020, when 70 were recorded. “The 11% increase in corporate receiverships is in stark contrast to the overall 30% decrease in insolvency activity,” said Van Dessel. “This reflects increased enforcement activity by secured creditors over corporate assets as moratoriums were lifted during 2021, where moratoriums during 2020 are likely to have created a backlog in receiver appointments.”

44 court liquidation appointments were recorded in 2021; however, this figure is somewhat distorted as, in Q4 2021, there were 27 court liquidations that all relate to the same group of companies. If this was counted as one liquidation, this would leave 18 court liquidations recorded in 2021 (4% of total insolvencies). This is a 59% decrease from 44 in 2020, which is significantly in excess of the overall decrease in insolvency activity of 30%.

Similar to previous years, the number of examinership appointments remained low with 18 recorded in 2021 (5% of total insolvencies), compared to 34 (6%) in 2020.

“This low level of examinership activity is expected to continue in light of the recent, welcome introduction of the new Small Company Administrative Rescue Process, or SCARP,” said Van Dessel. “The new process allows company directors to maintain control of the business throughout, and can be commenced and completed without need for a court application, which should appeal to SME directors who believe that their business is still viable, but perhaps has fallen into financial difficulty due to the Covid-19 pandemic or for other reasons. We believe that SCARP presents SMEs with a realistic alternative to examinership and Creditors’ Voluntary Liquidations, so we expect to see the take-up of those options continue to decline throughout 2022.

“While government supports have thankfully enabled many businesses to continue to operate during these difficult times – which we believe is reflected in the lower-than-anticipated level of corporate insolvencies seen in 2021 – we anticipate that, once the supports begin to be withdrawn, there will be an inevitable increase in the number of companies that cannot continue to operate in the absence of those supports. We would advise directors of any company that is in difficulty – or is likely to be in difficulty once the government supports are withdrawn – to seek professional advice at the earliest opportunity, to allow sufficient time to plan and implement a robust recovery strategy. It is undeniable that the number one controllable factor in a successful turnaround is early action by directors, and they should ensure they take advantage of it.”

18/01/2022