The latest insolvency figures to be released by FGS show a dramatic increase in the number of corporate failure cases for the year ending 31^st December 2009 compared to the previous 12 months, reports the firm’s Corporate Restructuring & Insolvency Partner, Declan Taite.

Between January and December 2009, 1,570 Irish companies were placed in Creditors’ Voluntary Liquidation, High Court Liquidation, Receivership or Examinership, up a staggering 108% on last year which saw 753 corporate failures recorded. Of concern is the fact that there is no apparent slowdown in the rate of failures as 435 or 28% of the failures occurred in the final three months of 2009.  There were incremental increases in each quarter throughout 2009.

The figures, whilst representing significant increases are not overly surprising when set against a backdrop of unprecedented continued economic turmoil and the general malaise which has affected the Irish economy over the past 12 months in particular the lack of liquidity, cashflow constraints, increasing unemployment, inflationary pressures, ongoing credit crunch etc.

Statistics

Table 1:

Summary of Creditors’ Voluntary Liquidations, High Court Liquidations, Receiverships and Examinerships by Industry (1 January – 31 December, 2009)

Table 2:

Summary of Creditors’ Voluntary Liquidations, High Court Liquidations, Receiverships and Examinerships by County (1 January – 31 December, 2009)

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

The ongoing demise in the construction sector is obvious from the statistics.  593 or 37% of all failures occurred in this sector.  This compares with 35% in 2007 and 40% in 2008.  To put these figures into context, there were more failures recorded within the sector in 2009 than had taken place in the previous 3 years combined.

The failures in the construction sector are generally small to medium sized developers and or sub contractors. However 2009 saw a number of high profile collapses within the sector.  The ongoing reduction in house prices, significant decline in the numbers of new units being built, uncertainty regarding the availability of credit for small to medium type developers and the likely decrease in the number of people working in the sector all indicate that much uncertainty is likely to prevail in the short term.  With the majority of the estimated €90 Billion in impaired debt within Irish banks relating to the construction / development sector it is difficult to see any significant reduction in the number of failures in the sector in 2010.

With regard to the trends emerging from the annual figures it is noted that Dublin continues to account for the majority of failures. Some 679 or 43% of all failures in the period took place in the capital in contrast to 173 (47%) in 2007 and 333 (44%) in 2008.

Significant increases in the number of failures in Cork (53 in 2008 as opposed to 144 in 2009); Galway (44 in 2008 as opposed to 99 in 2009) and Kildare (31 in 2008 with 67 in 2009) should be noted. The only county to record a decrease in failures, 9 in 2008 as opposed to 5 in 2008, was Leitrim.  Every county within the Republic recorded at least five failures.

Notable trends in the industry sectors, in which the failures have occurred, include the significant increase in failures in the hospitality sector such as pubs, restaurants and suppliers to the industry where 214 collapses occurred or 14% of the total. This compares with 109 failures in the sector in the same period in 2008.  The significant increase in numbers in the sector is somewhat distorted due to the failure of various chains of pubs and hotels.

Other notable sectors in which failures occurred were home furnishings / interior design (120), retail (144) of which 52 were recorded in the clothing retail area, professional services (91), and Health & Leisure (62). In addition the motor industry experienced a four fold increase in failures from 25 in 2008 to 101 in 2009.

A significant increase in the number of receiverships was recorded in 2009 when compared with the previous 12 months.  Between January and December 2009 financial institutions / debenture holders appointed receivers to 169 businesses as opposed to a mere 57 in the same period in 2008.  This represents a significant 196% increase.  Furthermore these figures do not take account of circumstances where receivers were appointed in respect of personal borrowings as asset receivers as opposed to receivers appointed against loans advanced to limited liability companies.  A more realistic figure for total receiverships in 2009 is likely to be in excess of 200.  The concept of and utilization of “Statutory Receivers” as set out in the NAMA legislation will be interesting to observe in 2010.

The majority of the receivership appointments in 2009 occurred in the construction / development and hospitality sectors.

The utilization of the examinership process has increased, but not significantly in 2009.  92 companies had examiners appointed to them in 2009 as opposed to 70 in the previous 12 months.  The success rate of Examinerships in 2009 was in the order of 30% and the High Court was and continues to be critical of the survival prospects of certain entities.  The recent Supreme Court decision in the Linen Supply of Ireland case where a precedent was set for examiners being able to repudiate certain leasing obligations may be of assistance to multiple retail chains in reorganizing their businesses and may increase the number of Examinerships in 2010.

A significant increase in the number of High Court Liquidations in 2009 was also recorded. Official Liquidators were appointed to 129 entities as opposed to 66 in the previous 12 months.  Creditors’ Voluntary Liquidation continue to be the most common form of formal insolvency process accounting for 75% of all failures in 2009.

Declan Taite is a partner in the FGS corporate restructuring & insolvency division located at the Dublin office:

t: +353 (0) 1 418 2000
e: declan.taite@fgspartnership.com