The number of insolvencies this year to date has jumped by more than 100 or 29% with weeks still to go until the end of 2022, and it is likely that insolvency activity will surpass pre-Covid levels in the next two years, Deloitte has said.

There have been in excess of 500 insolvencies so far in 2022, indicating that Ireland is moving towards pre-pandemic levels of insolvency activity after two years in which the number of companies being liquidated has been "artificially" lowered by Covid supports.

"This year’s figures demonstrate we are moving towards pre-pandemic levels of insolvency activity, given the artificially low levels of insolvency in recent years," said David Van Dessel, partner in financial advisory at Deloitte.

"Furthermore, given the economic headwinds ahead with rising inflation, increased energy costs and higher interest rates, it is anticipated that insolvency activity will likely surpass pre-pandemic activity over the next 12 to 24 months.”

“Some sectors have been more exposed than others, and we can see that in hospitality, for example. While government supports gave a lifeline to many businesses in the industry during the Covid era, the changed patterns of consumer behaviour, escalating energy costs and difficulties in recruiting and retaining staff meant that some could no longer survive, and the only option was to shut their doors.”

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Figures show 22 companies have availed of the Small Company Administrative Rescue Process (SCARP), a process designed to allow SMEs struggling with excess debt to continue to trade while negotiating debt write-off and restructuring with creditors, which was introduced this year, accounting for 4% of insolvencies.

Eight companies have successfully completed the SCARP process, saving 290 jobs, with three firms having entered liquidation after finishing SCARP, resulting in the loss of 61 jobs.

A further 10 SCARPs remain active, with a potential 125 jobs to be saved, and one appointment from April 2022 is currently in court.

"With this initial high success rate, I think we can look forward to seeing SCARP becoming more widely used by SMEs, with resulting jobs being saved in our local communities, but that is in the hands of SME directors," Van Dessel said.

"The government has played its part by providing struggling SMEs with the SCARP option and it is now incumbent on the business community to ‘act early’ where they are facing financial difficulties and to deal with their finances in a pragmatic and realistic manner.”   

Creditors' Voluntary Liquidations (CVL) made up the most insolvencies at 371 or 72%, up from 261 or 65% in 2021, representing a 42% increase in CVL activity year-on-year.

Some 84 Corporate Receiverships were recorded to date in 2022, or 16% of total, an increase of just under 8% on 2021, when 78 were recorded. 

A further 29 Court Liquidation appointments were recorded in 2022, which is a 34% decrease from 44 Court Liquidations in 2021. However, this 2021 figure was skewed by 27 Court Liquidations all related to the same group of companies in Q4 2021. 

There have been only 10 examinerships this year, down from 18 last year and making up just 2% of insolvencies. However, when combined with SCARP there have been 32 restructuring events in 22, representing a 78% increase year-on-year.

The wide-ranging service sector once again made up the highest number of corporate insolvencies, with 219 to date this year, which equates to 44% of total insolvencies and a 30% increase year-on-year (168).

This is consistent with 2021, when 42% of all insolvencies were in the services sector, and similarly in 2020, when 39% were in services.

Financial services (69) and real estate (48) accounted for 117 of the 219 services insolvencies and 23% of total insolvencies, compared with 28% in 2021.

Within the financial services sector, holding companies and business and management consultancy companies were the most prevalent sub-sectors. 

Health, fitness and beauty companies also featured prominently again, with 36 insolvencies recorded to date in 2022 or 7% of total insolvencies, compared with 31 in 2021 (8%).

Some 15 insolvencies were recorded in technical and professional services companies, nine in entertainment, nine in arts and media, five in education, five in IT consultancy and 23 in other services in 2022.

Overall, the hospitality sector recorded the second-highest number of corporate insolvencies in 2022 with 56, representing 11% of total insolvencies, and an increase of 81% year-on-year (31).

The construction sector has faced 50 to date in 2022, or around 10% of total insolvencies, which is a surprising decrease of 28% from 2021 (69) considering the difficulties construction firms are facing amid rising prices and slowing activity.

There have been 44 insolvencies in retail, up from 38 (+16%) last year, and the remainder were split between manufacturing (23), IT (19), transport (14), wholesale (nine), agriculture (six) and other business sectors (60).

Three-quarters (74%) or 384 insolvencies have been recorded in Leinster, up 45% from 2021 (264), with the other three provinces all seeing no change declines in insolvency activity.

Munster recorded 85 (16% of total) corporate insolvencies to date in 2022 down from 88 in 2021, Connacht saw 30 (5.8% of total) down from 32 and Ulster had 17 (3.3% of total) which matches 17 in 2021.

 “Now we are in a moment of higher living costs, leading to reduced discretionary spend, plus higher costs of doing business, both caused by inflation," Van Dessel said.

"So, there are a number of factors feeding into financial distress for struggling businesses, and this is before warehoused taxes have to be paid back, which is due to start between December 2023 and spring 2024, depending on the specific circumstances of the debtor entity.

“Overall, the general outlook is a 'return to norm' in terms of the statistics we are currently seeing, but I anticipate we will surpass that ‘norm’ in the near future with increased levels of insolvency activity."