Deloitte report indicates firms are delaying insolvencies because of Covid supports.
The economic impact of the pandemic could materialise over a number of years, rather than as a ‘tsunami’ of corporate insolvencies in 2022.
That’s the view of Deloitte partner for Financial Advisory David Van Dessel.
“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”
He said that the withdrawal of Government Covid supports will impact struggling companies.
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.
“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,” Van Dessel explained.
“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.”
Insolvencies by region
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.
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).
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.
Insolvencies by sector
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.
“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,” Van Dessel said.
“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.