Company failure rates tipped to rise on delayed reopening
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The number of company insolvencies significantly declined in the first half of the year, but business failure rates are still expected to rise again on the back of a delayed full reopening of the economy and the eventual phasing out of government supports.
A total of 169 company insolvencies were recorded during the first six months of this year, according to data from Deloitte; that was down by 38% on the 273 company failures reported in the first half of 2020.
However, Deloitte has warned that the full effects of the Covid crisis on companies and the economy “have not fully materialised as yet”.
The latest figures show that 58 insolvencies were reported in the second quarter of the year, down 48% on the first three months of the year, when there were 111 cases.
David Van Dessel, financial advisory partner with Deloitte Ireland, said the reasons for the quarterly improvement are “unclear”, but that the broader picture is being masked by the Government’s Covid support measures for businesses.
He said that a firmer reading of the health of corporate Ireland will only be able to be taken mid-way through next year when most supports have been phased out.
“It is generally accepted that the full effects of Covid-19 on the Irish economy have not fully materialised in terms of corporate insolvencies,” Mr Van Dessel said.
"The current crisis has created a significant challenge for many otherwise viable Irish companies and we anticipate that the first half of 2022 will paint a more accurate picture of how the Covid-19 pandemic has influenced the economy and the knock-on effect on our SME sector,” Mr Van Dessel said.
The broad services sector was the worst hit for insolvencies in the first six months — particularly financial services, which made up 70% of cases.
But, predictably construction, retail, and hospitality were also hit — accounting for 18%, 12%, and 10% of cases, respectively.
Mr Van Dessel said increased levels of business closures could be seen in the hospitality sector due to the delayed reopening of indoor dining and drinking as well as the gradual cessation of supports.
Voluntary liquidations have made up the bulk of cases this year, but receiverships are on the rise, while examinerships remain low.
The Government’s pending new SME corporate rescue legislation — granting a simpler and less costly alternative to examinership and court protection — has been welcomed, with Mr Van Dessel saying Ireland is “on the cusp of a new age” for SME protection.
“Thirty years after the introduction of the examinership process, with such low levels of examinership activity, the Government is to be commended for the imminent introduction of the Small Company Administrative Rescue Process (Scarp)," he said.
Meanwhile, separate data shows that despite some insolvencies Ireland’s services sector saw a strong June, with jobs growth reaching a four-year high and the sharpest growth in business activity and new work order levels since January 2016.
The transport, tourism and leisure sector showed good growth, according to a monthly survey by AIB, as some level of hospitality reopened. However, pressures remain.
"Growth in new export business, while improving, is not nearly as strong. It has been held back in part by a continuing contraction in business from overseas in transport and tourism," said AIB chief economist Oliver Mangan.
"Cost pressures continue to intensify, with input price inflation hitting its highest level since 2008 on a broad range of price rises," he said.