The ODCE’s report for 2021 indicates that the downward trend in the number of company insolvencies continued through the year, with an overall reduction of 39%.

Creditors’ voluntary liquidations were down substantially on the 2020 figure (253 from 443), while the 49 court liquidations were at the same level as in 2020. The result was an overall reduction of 39% in insolvent liquidations, which represent just 17% of total company liquidations.

Office of the Director of Corporate Enforcement director Ian Drennan said: “Over and above the general downward trend in recent years, factors contributing to the fall off in insolvent liquidations during 2021 will have included creditor forbearance, the various state supports provided in recognition of the Covid-19 public health emergency, and the temporary amendment to the definition of what constitutes a company being unable to pay its debts.”

However, in Drennan's view this trend may not continue.

According to Drennan (pictured): “The prevailing view seems to be that corporate insolvencies have been artificially low in recent years. As state supports are withdrawn and temporary legislative provisions unwind, the number of companies entering insolvent liquidation will increase, potentially significantly.

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“Should that come to fruition, that will likely see a material increase in the volume of liquidators’ reports being submitted in the coming years. Naturally, the unique circumstances of the Covid-19 pandemic will feature large in the considerations that will have to be had regard to in determining whether relief should, or should not, be granted in respect of the company directors concerned.”

According to Deloitte, 253 corporate insolvencies were recorded in Ireland in the first half of 2022, an increase of 50% from the same period in 2021.

On a quarterly basis, 133 corporate insolvencies were recorded during Q2 2022, an 11% increase on Q1. Deloitte noted that 310 insolvencies were recorded in H1 2019 before the impact of the Covid-19 pandemic.

Partner David Van Dessel commented: “It appears that the full effects of high inflation, soaring energy costs, global supply chain issues and labour shortages have yet to have any significant impact on corporate insolvencies. We expect these factors to influence the insolvency numbers over the coming 18 months.

“It is notable that so many companies in the services sector experienced insolvency during H1, despite the lack of component inputs into these businesses. A total of 167 companies entering insolvency were classified in this sector. A more in-depth review of these figures shows some 70% of those were classified as being in the financial services and real estate sectors.”

A total of 170 Creditors’ Voluntary Liquidations (CVLs) were recorded during H1, representing 67% of total insolvencies in the period, followed by 58 Corporate Receiverships (23% of total); 13 High Court wind-up petitions (5% of total); nine Examinerships (4% of total); and four Small Company Administrative Rescue Process (SCARP) appointments (2% of total).

Ken Tyrrell, PwC Ireland business recovery partner, noted that the economic supports that were put in place during the pandemic have now been removed, most notably the Employment Wage Subsidy Scheme (EWSS).

“Similar supports were removed in the UK during autumn 2021, followed by a very significant pick up in liquidations in the following two quarters. It remains to be seen for how long those organisations under financial pressure in Ireland can stay in business,” said Tyrrell

“We estimate that c.4,500 businesses were saved from failure primarily as a result of the government’s Covid supports, with a number of these businesses essentially being put on ‘life-support’.”

Tyrrell added that the UK is trending towards its 17 year average business failure rate (52 per 10,000) whilst Ireland remains far below its average (39 per 10,000) with an annual liquidation rate of 11 per 10,000 at the end of Q1 2022.

“Businesses are now faced with challenges many have never had to face before - rising inflation, interest rates and energy costs,” Tyrrell added.

“As the government pandemic supports have now expired, businesses will have to rapidly assess their core underlying profitability and ability to trade in the absence of wage subsidies and financial support.

“Over the remainder of this year and into 2023, we expect that an increasing number of businesses will avail of the SCARP restructuring tool, as well as the under-utilised examinership process, as they seek to deal with legacy debts that they have little or no prospect of repaying.”

Legitimate failures

The number of liquidator reports processed by the ODCE in 2021 was 670, a similar number to 2020.

In the ODCE annual report, Drennan notes that “the majority of corporate insolvencies are legitimate business failures deserving of no sanction or enforcement response".

Full relief was granted to liquidators in 57% of cases, with ‘no relief’ or ‘partial relief’ decisions made in only 7% of cases.

Directors of a company given no relief usually can offer to undertake either to restrict their activities as a director, thereby avoiding High Court proceedings.

In 2021 40 restriction offers out of 59 submitted were approved along with four disqualifications out of five offers. At the High Court, a further 11 directors were restricted and 12 disqualified.

Drennan noted the verdict in the cases of two firms, Gaboto Ltd and Pembroke Dynamic Internet Services Ltd, where directors received the longest-ever disqualification periods of 15 and 16 years respectively.

ODCE investigations led to a total of 62 criminal charges being preferred against named individuals in 2021. Ofences spanned fraudulent trading, furnishing false information, theft and money laundering.

During the year, three individuals were convicted, or facts were found to have been proven in respect of 12 offences (100% of convictions secured on pleas of guilty).

At year end, four cases involving some 60 charges remained before the District or Circuit Courts and one file was with the DPP as to whether charges should be directed on indictment.

The ODCE also directed rectification of directors’ loans infringements to the value of almost €10m.

In line with the ODCE’s enforcement principles, rectification of a range of other company law matters, including indications of non-compliance with accounting standards, indications of persons acting as company directors while not permitted to do so and issues associated with company meetings, were dealt with without recourse to formal enforcement.

Last December, the Companies (Corporate Enforcement Authority) Act 2021 was signed into law, and the ODCE says its main focus during this year will be on “finalising preparations for the establishment of the Corporate Enforcement Authority”.