17% increase in the number of business failures in Ireland

October 1, 2010

The number of Creditors’ Voluntary Liquidations, High Court Liquidations, Receiverships and Examinerships in the nine months ended 30 September 2010 has increased by 17% on the same period in 2009.  Declan Taite, FGS Corporate Restructuring & Insolvency Partner analyses the statistics.

Figures compiled by FGS show that 1,330 companies were placed in liquidation, receivership or examinership in the first 9 months of 2010, representing an increase (17%) on the 1,135 failures for the same period in 2009.

The slowdown in the rate of failures in the first six months of 2010 has continued.  The numbers of failures in the first three quarters of 2010 has continually reduced Q1 469, Q2 443 and now Q3 418. It is nonetheless probable that some 1,800 to 1,850 failures will be recorded for the full year which compares with 1,570 failures in 2009.

The tables below set out an analysis of these failures by industry (Table 1) and geographical location (Table 2).

Table 1:

Summary of Insolvent Liquidations, High Court Liquidations, Receiverships and Examinerships by Industry Period 1 January 2010 to 30 September 2010

Table 2:

Summary of Insolvent Liquidations, High Court Liquidations, Receiverships and Examinerships by County. Period 1 January 2010 to 30 September 2010

The figures, whilst representing not insignificant increases are not overly surprising when set against a backdrop of continued recessionary pressures and economic downturn.The on-going demise in the construction sector is obvious from the statistics.  516 or 39% of all failures occurred in this sector.  This compares with 35% in 2009 and 40% in 2008.  The failures in the construction sector, in the main, continue to be small to medium sized developers and or sub-contractors.  However like 2009, 2010 continues to see a number of high profile collapses in the sector.

The on-going reduction in house prices, a virtual stop in the number of new units being built, uncertainty regarding the availability of credit for small to medium type developers and purchasers all indicate that much uncertainty is likely to prevail in the short term.  The uncertainty is likely to be further compounded as the transfer of toxic loans to The National Asset Management Agency (“NAMA”) continues.

With regard to the trends emerging from the first nine months of 2010 it is noted that Dublin continues to account for the majority of failures. Some 567 or 43% of all failures in the period took place in the capital in contrast to 210 (44%) in 2008 and 495 (43%) in 2009.

Significant increases in the number of failures in Wexford (22 in 2009 as opposed to 44 in 2010); Clare (19 in 2009 as opposed to 36 in 2010); Tipperary (18 in 2009 as opposed to 27 in 2010) and Cork (110 in 2009 with 130 in 2010) should be noted.  Carlow recorded the lowest number of failures (3) in the period.

Notable trends in the industry sectors, in which the failures have occurred, include the apparent stability in the number of failures in the hospitality sector such as pubs, restaurants and suppliers to the industry where 169 collapses occurred or 13% of the total. This compares with 164 failures in the sector in the same period in 2009.

Other notable sectors in which failures occurred were professional services (54), healthcare & leisure (62) and home furnishings / interior design (79).  In addition, failures in the motor industry appear to have levelled out with 64 failures in 2010 compared to 68 for the same period in 2009.

The retail sector recorded a significant increase in failures with 115 which represents a near 100% increase on the 58 failures recorded in the same period in 2009.

A dramatic increase in the number of receiverships (123%) was recorded in the first nine months of 2010 when compared with the same period in 2009.  Between January and September 2010 financial institutions / debenture holders appointed receivers to 274 businesses as opposed to 123 in the same period in 2009.  The majority of these receivership appointments have occurred in the construction / development, hospitality and retail sectors.  These three sectors now account for in excess of 60% of failures.

Furthermore these figures do not take account of circumstances where receivers were appointed in respect of personal borrowings (“Asset Receivers”) as opposed to loans and advances to limited liability companies.  A more realistic figure for total receiverships in the first nine months of 2010 could be closer to 350. The concept of and utilization of “Statutory Receivers” as set out in the NAMA legislation will be interesting to observe in the remainder of 2010 as toxic loans continue to be transferred from the relevant financial institutions.

The utilisation of the examinership process has seen a dramatic decrease in the first nine months of 2010.  29 companies had examiners appointed to them in the first nine months of 2010 as opposed to 79 in the same period in 2009.

The number of High Court Liquidations in the first nine months of 2010 reduced with 69 Official Liquidators appointed as opposed to 84 in the same period in 2009.  Creditors’ Voluntary Liquidation continue to be the most common form of formal insolvency process accounting for 72% of all failures in the first nine months of 2010.

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