Insolvencies increase by 27% in the first half of 2010

• Insolvencies for the first six months of the year have increased by 27 per cent compared to last year
• Construction, Services, Hospitality and Retail sectors account for almost three quarters of all insolvencies this year to date
• Export-led sectors, such as manufacturing, wholesale and transport sectors are doing much better than expected
• Dublin-based companies continue to account for the majority of all failures, 40 per cent of the national total

New statistics released today by InsolvencyJournal.ie reveal that the number of insolvencies recorded in the first half of 2010 has increased by 27 per cent, this rise means that it has already surpassed the yearly total for 2008.

A total of 792 companies went bust between January and June of this year. This is an increase of 27 per cent on the 622 failures recorded in the same period in 2009. The number of corporate insolvencies so far this year has already exceeded the yearly total for the whole of 2008, when 773 failures were recorded.

Commenting on the statistics, Tom Kavanagh, a partner in kavanaghfennell said “Based on this trend, it is probable that there will be close to 1,800 insolvencies this year and if the figure for personal asset receiverships is included, insolvencies are likely to be over 2,000 for the year."

Companies operating in the domestic market were particularly badly affected in the first six months of the year. Construction, services, hospitality and retail – traditionally domestic sectors – accounted for almost three quarters of all insolvencies with one in three failures occurring in the construction industry. "While the domestic sectors are still struggling, export-led sectors such as manufacturing, wholesale and transport are holding up well, accounting for just 13 per cent of failures," says Kavanagh.

Dublin continues to account for the majority of failures, with 322 insolvencies for the year-to-date – 40 per cent of the national total. Whilst, Carlow recorded the lowest number of insolvencies in the first six months of the year with only 2 companies going bust in the county.

There was a significant increase in the number of receiverships in the first six months of 2010 when compared to the same period in 2009. Receivers were appointed to 118 companies between January and June of this year, representing a 174 per cent increase on H1 2009 (43) and almost equalling the yearly total of 124 last year. Twice as many companies have entered receivership so far this year, compared to the 2008 total of 57. "The latest statistics show that banks are moving into recovery mode to recover distressed loans," says Kavanagh. "The figure of 118, however, only reflects corporate receiverships and does not include personal asset receiverships. We`re seeing a similar increase in personal asset receiverships, if not a bit more, so there were probably twice as many receiverships in the first half of the year if personal asset receiverships are included."

Examiners were appointed to 9 companies in the first half of the year, compared to 14 last year and 13 in H1 2008. Of the nine companies which entered examinership, however, only one examinership has failed – Future Print – while a number of high profile firms such as Jackie Skelly Fitness and Irish Car Rentals (ICR) have avoided liquidation through court protection.

Construction was once again the worst affected sector as subdued private sector activity, a reduction in capital spending and the unavailability of credit continued to cause problems for the sector. Approximately one in three company failures this year occurred in the construction industry, with 240 construction firms collapsing in the first half of 2010. The latest figures show that failures in the sector have increased by 17 per cent compared to last year when 206 insolvencies were recorded.

And the situation in the industry is set to get worse before it gets better, according the Martin Whelan, Director of Policy and Research with the Construction Industry Federation (CIF). "The trend these figures show is deeply regrettable but not surprising. Unfortunately, while there are some signs of economic recovery, particularly on the external side of things, construction output continues to fall. CIF is predicting that the value of output this year will fall somewhere between €10 and €12 billion, from €19 billion in 2009. We`re also expecting it to fall below €7 billion in 2011, or less than 6 per cent of the GDP, which is well below the EU average of 10-12 per cent of economic value. As output continues to fall, further company failures are inevitable."

One of the most surprising figures to emerge from the latest statistics is that insolvencies in the motor sector remained static this year, despite the introduction of the car scrappage scheme in December`s budget. Although sales of new cars increased by 41 per cent in the first five months of 2010 compared to last year, 22 insolvencies were recorded in the first half of 2010 – the same figure as last year. The latest figures for the sector, however, are somewhat inflated by the high level of failures in the past two months. Thirteen companies in the motor trade collapsed in May and June – almost 60 per cent of the total.

The services sector recorded the second highest level of insolvencies. Failures in the industry increased by over a quarter with 147 companies going bust in H1 2010, compared to 117 for the same period last year.

Over-supply of rooms, reduced corporate demand and the downturn in consumer spending has brought the hospitality industry to its knees in Ireland and insolvencies in the sector have increased dramatically, jumping from 69 in H1 2009 to 103 so far this year. The industry has been hit by a spate of high-profile closures and receiverships in 2010. In May alone, receivers were appointed to Lisloughrey Lodge in Mayo, Johnstown House Hotel & Spa in Enfield, Co. Meath and the Killeshin Hotel in Portlaoise and the Spawell golf and leisure centre.

Meanwhile, retailers continue to be affected by high rents and reduced consumer confidence. 95 companies went bust in the sector in the first half of the year – up 12 per cent on last year – but the rate of decline in the sector appears to be slowing down. Retail failures accounted for 14 per cent of total insolvencies in H1 2009 (84), compared to just 12 per cent this year. "The market is starting to pick up and the rate of decline is reducing," says David Fitzsimons, CEO of Retail Excellence Ireland. "But certain sectors are still experiencing decline, such as the homeware sector. Other areas [within the industry] are closer to reaching parity but most are still loss-making. We haven`t seen the end of significant failures or significant unemployment in the sector."

Fitzsimons predicts that the sector will experience "marginal" like-for-like growth by the end of the year. "But the problem is only just starting. Retailers have had to turn their businesses on their heads and the vast majority of them will remain loss-making," he says.

IBEC economist Fergal O`Brien is more confident about the retail sector. "Retail is one area where I think we`re seeing a turning point. Core retail sales, even when you take out motor sales, have been growing over the past 3/4 months. There was no income tax increase in last year`s budget and people are beginning to spend again."

Commenting on the economic situation, Tom Kavanagh, kavanaghfennell, said “Yesterday’s Quarterly economic figures indicated that Ireland has technically emerged from recession, primarily due to the contribution of multi nationals. Kavanaghfennell believe that the first half year insolvency statistics seem to back this up as the retail, hospitality and services sectors are struggling, while export driven sectors such as transport and manufacturing are performing better than expected.”

(Source: Insolvency Journal.ie)

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