Insolvencies Fall But Services Sector Hit Hard In 2016

12 Jan 2017 | 09.32 am

Insolvencies Fall But Services Sector Hit Hard In 2016

Deloitte recorded a 65% hike in services sector insolvencies

12 Jan 2017 | 09.32 am

Corporate insolvencies in 2016 were down 2% compared with the year before, but significant fluctuations were recorded in the retail and services sectors, according to Deloitte website InsolvencyJournal.ie.

The total figure for 2016’s corporate insolvencies was 1,032, down from the 1,049 recorded in 2015 and evidence, said Deloitte, that the economy is improving. Beneath the headline figure, however, the service sector recorded a 65% jump in insolvencies (to 329), making it the most insolvency-hit sector through 2016.

Elsewhere, the trend was positive in the retail industry, which posted a 38% drop in insolvencies (to 96), due to a more benign environment on the high street in 2016.

Insolvency Spike

Commenting on the significant services sector insolvency spike, David Van Dessel (pictured), partner in Deloitte, said: “While this increase in the service sector failures may seem counter-intuitive, it often occurs as the economy emerges from a recession.

“Many companies have spent so long in survival mode that when new orders do start to finally come through they often rush to take advantage and can end up over-trading and running out of cash. This problem is compounded by the difficulty companies can still face accessing financing and loan facilities and, as can be seen from Insolvency Journal’s statistics, this can be fatal.”

Of 2016’s 1,032 corporate insolvencies, creditors’ voluntary liquidations (CVL) accounted for the majority, with 626 recorded in the period (61%). The figure is down 14% from the same period last year, when 729 CVLs were recorded. Receiverships accounted for 346 (34%) of the total corporate insolvencies in 2016, up by 38% from 251 in 2015.

There were 45 court liquidator appointments in the year, down from 50 in 2015. In 22 of these cases, the Revenue Commissioners brought the petition to wind-up.

Deloitte noted that examinerships continued to remain at disappointingly low levels; in 2016, just 15 examiners were appointed, representing 1% of insolvency appointments in the period. This level of examinership take-up is consistent with the comparable periods.

Deloitte added that, for smaller SMEs, there are options to explore restructuring through use of the ‘super-lite examinership’, Section 450 schemes of arrangement, which is cheaper and has less court involvement.

Geographically, the highest number of corporate insolvencies in the period was recorded in Leinster, with 66% (687) of the total appointments. Munster had 22% of appointments, up from 21% the previous year, while Connaught was consistent with 2015 at 9%. Ulster with just 3% of insolvencies, was down from 5% in 2015.

Said Van Dessel: “These results appear to show that the total number of corporate insolvencies is beginning to level out somewhat. While we aren’t seeing the low levels of insolvencies recorded during the so-called Celtic Tiger years, it may be that the particularly low numbers seen in 2007 and 2008 were outliers themselves and the levels of this year and last are a more realistic baseline to compare future levels to.

“We anticipate the overall trend in corporate insolvencies to continue to reduce throughout the year as economy improves and business activity increases. However, the number of insolvencies in the services sector is likely to remain significant in 2017.”

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