Corporate insolvencies rose 22% in first quarter
The number of corporate insolvencies recorded in the first three months of the year rose 22% compared to the same period last year.
But overall the number of insolvencies is down slightly on the last three months of 2022, indicating that the forecasted steep increase in firms going out of business is not currently happening.
Data compiled by Deloitte found 146 firms faced insolvency in the quarter, up from 120 in the same period last year.
But in the final quarter of last year, the number recorded was much higher at 154.
“There’s been many predictions of a tsunami of corporate insolvencies to happen in this jurisdiction, it has not materialised,” said Partner, Financial Advisory at Deloitte, David Van Dessel, who was speaking on RTÉ’s Morning Ireland.
“I think that is thanks to the Government supporst that were put in place during the Covid crisis, which has put back those problems for many companies – particularly the SME sector.”
However he said that a continued increase in insolvencies was likely as the year progressed.
“During 2022 this increase in insolvency has been consistent and gradual – I think that a gradual increase will continue for the foreseeable future,” he said.
The Deloitte report points out that €2.3 billion in tax debt, owed by Irish firms to Revenue, is still warehoused – an option that was made available to firms as part of the Government’s Covid response.
Interest will start to be applied to that debt from the start of May, meaning it will become more of a burden to the firms that owe money.
However companies still have another year before they have to agree a phased repayment arrangement with Revenue, meaning it is not neccessarily the most urgent problem facing businesses.
“Unfortunately there are other factors at play,” said Mr Van Dessel. “We have increased interest rates, and we have inflation cost – both of those causing additional pressure on the SME sector.
The Deloitte analysis found that Creditors’ Voluntary Liquidations (CVLs) rose by more than two thirds in the quarter compared to the same period in 2022.
In total 100 CVLs were recorded, up from 60 a year earlier.
Deloitte claims the gradual increase in CVLs since the start of last year is down to a range of issues, including rising interest rates, damage caused to the economy by Covid-19 restrictions, inflation and subdued spending by consumers.
The first quarter also saw 24 Corporate Receiverships, a 44% reduction compared to the same three months of 2023, but triple the quantity in the last three months of 2022.
Liquidation figures remained low, with just seven between January and March, while Special Company Administrative Rescue Process (SCARP) cases accounted for 11 cases.
There were just four examiners appointed during the period.
In total though, the number of restructurings from SCARP and examinerships was double the number in the first quarter of 2022.
“There’s been a 50% increase in corporate recovery,” said Mr Van Dessel. “That has been a most welcome change, with the introduction of the new small company rescue process.
“That is really playing into the figures at the moment.”
The SCARP process was introduced in 2021 to help smaller firms to fix their financial problems and avoid collapse, and Mr Van Dessel says it is working.
“Statistics would show a 70% success rate for that process,” he said. “Early action is the key for SME directors to avail of that process.”
The services sector saw the biggest difficulties, with 46 corporate insolvencies, up from 32 in the final quarter of last year.
14 of those were in financial services, with fitness and beauty making up six.
Elsewhere, construction saw 21 insolvencies, up from 17 between October and December.
The retail sector saw a big jump of 50% compared to the January to March window last year, but down 20% on the 20 in the final quarter of 2022.
114 of the insolvencies were in Leinster, with 18 in Munster, 11 in Connacht and three in Ulster.
“When looking at corporate insolvency figures from the last six months … there were a total of just under 300 insolvencies,” said Mr Van Dessel.
“Assuming this level of insolvency activity is to continue for the remainder of the year, we are likely to have in the region of 600 corporate insolvencies.
“This would represent the highest number of insolvencies since 2018 (768) and a return to the pre-pandemic insolvency activity level (568 in 2019). It is uncertain whether the activity will continue to increase or whether it will stagnate in the 600-700 range.”
Mr Van Dessel added that given the economic impact of Covid-19 has yet to be fully reflected in corporate insolvency activity and the effects of inflation and higher interest rates, there is an expectation that insolvency activity is more likely to exceed pre-pandemic levels.