Highest corporate insolvency levels since 2018 recorded in 2023, with a 62% increase in both construction and hospitality sectors.
A total of 663 corporate insolvencies have been recorded in Ireland in 2023, according to the latest Insolvency & Restructuring Statistics compiled and published by Deloitte Ireland.
This represents an increase of 25% from the total number of insolvencies recorded in 2022 of 530.
“Acting early and speaking with your trusted advisors when experiencing financial difficulties on how to resolve legacy debts should be the priority of business owners and directors as this affords more time and options to address matters”
There have been 33 SCARP (Small Company Administrative Rescue Process) appointments in 2023. 78% of these have been successful savings circa 211 jobs.
Of the 33 SCARP appointments, five were unsuccessful resulting in liquidation and 70 job losses and 10 SCARPs are ongoing which impacts 178 jobs.
Since its introduction in 2021, there have been a total of 55 SCARP appointments with 35 being successful reflecting a success rate of 76% and resulting in almost 600 jobs being saved.
SCARP is working
“This year’s statistics show a return to pre-pandemic insolvency activity levels with cautious consumer sentiment, cost inflation and higher interest rates starting to impact many businesses,” said James Anderson, Turnaround and Restructuring partner at Deloitte Ireland.
“Given the high rate of successful outcomes to date, it is evident that SCARP is an effective process which provides SMEs with a timely and cost-effective opportunity to restructure.
“Awareness of the SCARP process (and its benefits) is still not yet widely considered by advisors and business owners/directors but hopefully that will change with time. Its genesis is to provide viable businesses with an opportunity to restructure however careful planning and compliance prior to considering/ commencing SCARP is fundamental.
“Acting early and speaking with your trusted advisors when experiencing financial difficulties on how to resolve legacy debts should be the priority of business owners and directors as this affords more time and options to address matters.”
Voluntary liquidations
Creditors’ Voluntary Liquidations (CVLs) continue to account for the majority of insolvencies with 470 (71% of total) in 2023, compared to 383 (72% of total) in 2022.
The total of 470 in 2023 represents a 23% increase in CVL activity in 2022. Court liquidations account for 6% of total insolvencies with 2023 activity levels increasing by 31% to a total of 38, compared with 29 appointments in 2022. 106 Corporate Receiverships were recorded in 2023 (16% of the total), an increase of 23% on 2022, when 86 appointments were recorded.
Despite increasing 60% since 2022, examinership activity levels remained low in 2023 with 16 recorded (2% of total) recorded despite a success rate of over 80%.
There was a total of 1,494 Members Voluntary Liquidations (MVLs) in 2023. These activity levels were 2.25 times the level of corporate insolvencies in 2023. The majority of MVLs in 2023 related to subsidiary companies and Special Purpose Vehicles (SPVs) in the financial services, aviation, pharmaceutical and tech sectors.
“Corporate simplification activity levels in Ireland in 2023 reflect the strength of financial services, aviation, pharma and tech industries locally,” Anderson said.
“Groups with large corporate footprints are actively reviewing non-core and SPVs entities to identify what can be wound down, thereby reducing management oversight required and saving on annual compliance costs and associated professional fees.”
Debt warehousing
The latest reported Revenue statistics on warehoused debt at the end of November 2023 indicated the following:
- Almost €1.8bn of warehoused debt owed by 58,152 businesses (estimated average debt of circa €31,000)
- 10% of businesses owe more than €50,000 (estimated average of circa €250,000)
- €90m of debt previously warehoused by 831 businesses was determined as uncollectable due to liquidation
The due date for payment of warehoused taxes is fast approaching and businesses have until May 1,2024 to either pay their warehoused debt in full, or agree a Phased Payment Arrangement (PPA).
If there is no agreed PPA in place, the entire of warehoused debt is due and owing on 1 May 2024. A key component of a PPA is that it will likely include a minimum down payment of up 40% of the warehoused liability, and agreement of same may impact tax clearances.
Insolvencies by sector
A total of 535 corporate insolvencies were recorded in Leinster, making up 81% of insolvencies. This is a 37% increase on 2022.
Financial Services companies accounted for 36% of insolvencies recorded within the ‘service sector’ in 2023, at 93 in total.
Within the financial services sector, holding companies and business and management consultancy companies were the most prevalent sub-sectors.
Technical and Professional Services and Real Estate also featured prominently within Services, with 36 and 32 insolvencies in 2023 respectively.
Elsewhere within the services sector, there were 23 insolvencies in Fitness and Beauty in 2023; 17 insolvencies were recorded in health and social work companies; 15 in Education and the remainder in other services.
The Hospitality Sector recorded the second-highest number of corporate insolvencies in 2023 with 99, representing 15% of total insolvencies.
This is a substantial increase of 62% when compared with 61 insolvencies in the ‘hospitality sector’ in 2022 (and a further jump when compared with only 31 in 2021).
The Hospitality industry is likely to has been particularly impacted by high energy and labour costs. Coupled with a higher cost of living which is impacting discretionary spend, has likely contributed to the surge in hospitality related Insolvencies.
The Construction Industry recorded 89 insolvencies to date in 2023, representing just over 13% of total insolvencies. This is a notable increase of 62% when compared with 2022, when a total of 55 construction insolvencies were recorded. This is not surprising given the difficulties construction companies are facing around the increasing costs of materials.
The Retail Industry recorded 59 insolvencies in 2023, representing 9% of total insolvencies, which represents a 23% increase compared with 48 in 2022.
The remainder of the insolvencies were spread amongst the other sectors, with 40 in manufacturing and agriculture, 27 in wholesale, 20 in transport, 17 in IT, and 51 in ‘other business sectors’.
Northern Ireland
Insolvency-related activity amongst Northern Ireland businesses is on the rise as interest rates bite.
The most recent monthly Insolvency Figures from the Office of National Statistics show activity returning to pre-pandemic levels. There were 190 corporate insolvencies in the region year to date, a slight decline of 5% from the same period in 2022 (199 YTD 2022).
“The corporate insolvency activity levels seen in recent months are driven by an increase in both Compulsory Liquidations and Creditors Voluntary Liquidations. In the month of September 2023, the number of Compulsory Liquidations reached the highest level since before the pandemic,” said Catherine Doran, Turnaround and Restructuring Director for Deloitte in Northern Ireland.
“The figures published reflect a greater level of business distress as companies continue to face challenges from all sides. Higher interest rates have increased the cost of borrowing while inflation has pushed up costs overall and at the same time consumers are spending less. More directors are making the tough choice to close down their businesses as they have reached the end of the road, in addition to creditors & the tax authority HMRC taking action to pursue debts they are owed.
“Recent figures from HMRC show at the end of September 2023, the amount of tax owed but unpaid in the UK totalled c.£45billion. According to reports from Treasury, Government is investing significant sums in HMRC’s debt management team to help support the team recoup unpaid taxes.”
