Rising inflation, interest rates and energy costs to add additional pressure to businesses in coming months, Deloitte warns.
The total number of corporate insolvencies forecasted in Ireland for the first three quarters of 2022 is 378, according to the latest insolvency statistics published by Deloitte.
This represents a substantial increase of 36% from the same period in 2021, when the total number recorded was 278.
“Consumers impacted by inflation and interest rate increases may also reduce their discretionary spending, further exacerbating downward economic pressures”
On a quarterly basis, 125 corporate insolvencies are forecasted for Q3 2022, based on 83 insolvency events in July and August 2022.
“Based on current insolvency activity levels and trends it now appears that the previously forecasted wave of insolvencies is becoming a reality.
As in previous years, Creditors Voluntary Liquidation (CVL) currently accounts for the majority of corporate insolvencies, projected to reach 259 by the end of Q3 2022, representing just under 70% of total insolvencies year to date. In line with the overall trend, this represents a 34% increase from 2021, when there were 193 CVLs during the same period.
Corporate Receiverships are forecasted to see a 33% year on year increase from 59 to just under 80 by the end of Q3 2022 and Court Liquidations are also forecasted to increase from 15 in Q3 2021 to 20 by Q3 2022.
There has been a recent sharp increase in the uptake of the Small Company Administrative Rescue Process (SCARP) with six SCARP appointments in August 2022 alone, taking the total number of SCARP’s this year to 10. Deloitte welcomes the wider adoption of the SCARP process and expects this restructuring option to be more prevalent going forward.
As in previous years, the services sector is projected to account for the highest proportion of corporate insolvencies by the end of Q3 2022 with 195 insolvencies, representing 52% of total insolvencies recorded so far this year and up from 46% in 2021.
Within the services sector, financial services companies account for the highest incidence of insolvencies with 77, representing 20% of the total insolvencies in 2022 so far. Holding companies and business and management consultancy companies accounted for the majority of insolvencies within the financial services sub-sector. Other notable services sub-sectors were, real estate with 40 insolvencies and entertainment, arts & media with 31 insolvencies. The remainder of the insolvencies were evenly spread amongst the other sectors, with 38 in construction, 28 in retail, 26 in hospitality, 21 in manufacturing, 12 in transport, 12 in wholesale,15 in IT and 31 under the heading ‘other business sectors’.
Geographically, the highest number of projected corporate insolvencies year-to-date was recorded in Leinster, with 74% (282) of total insolvencies. Munster accounted for 16% (59) of insolvencies, with Connaught making up 7% (27) and Ulster making up 3% (10). These figures are in line with previous years.
“While businesses will be hopeful of Government support being announced in the upcoming Budget, we advise those already struggling to consider their options at the earliest opportunity, as early action is a key factor in successful turnarounds,” said David Van Dessel, partner, Financial Advisory at Deloitte in Dublin.
“Rising inflation, higher interest rates and spiralling energy costs are likely to increase pressure on businesses over the coming months. In addition, consumers impacted by inflation and interest rate increases may also reduce their discretionary spending, further exacerbating downward economic pressures.
“In addition, the recent news that the Revenue Commissioners are now issuing payment demands against businesses who are in default on current taxes, including businesses who availed of the warehoused debt facility during the pandemic, will place further distress on those businesses and may further accelerate the increase in insolvency activity.
“Recent reports that 84,000 businesses had warehoused circa €2.8bn in tax debt as at the end of July 2022, which is only slightly lower than the warehoused figure of €3bn as at the end of January 2022 are a worrying indicator of heightened insolvency risk as interest rate costs begin to bite. Interest will begin to accrue on most of that debt from 01 Jan 2023, after which point repayment plans will need to be agreed with the Revenue Commissioners,” Van Dessel explained.