INSOLVENCIES UP IN CONSTRUCTION

The highest corporate insolvency levels since 2018 were recorded in 2023, with a 62% increase in the construction sector

A total of 663 corporate insolvencies were recorded in Ireland in 2023, according to the latest Insolvency & Restructuring Statistics compiled and published by Deloitte Ireland.

This represents an increase of 25% from the total number of insolvencies recorded in 2022 of 530. Thirty-three SCARP (Small Company Administrative Rescue Process) appointments were also recorded in 2023; 78% of these were successful, saving circa 211 jobs and of the 33 SCARP appointments, five were unsuccessful, resulting in liquidation and 70 job losses. Since its introduction in 2021, there have been a total of 55 SCARP appointments with 35 being successful, reflecting a success rate of 76% and resulting in almost 600 jobs being saved.

In 2023, the construction industry recorded 89 insolvencies, representing just over 13% of total insolvencies. This is a notable increase of 62% when compared with 2022, when a total of 55 construction insolvencies were recorded. This is not surprising given the difficulties construction companies are facing around the increasing costs of materials.

Debt Warehousing
The latest reported Revenue statistics on warehoused debt at the end of November 2023 indicated that almost €1.8 billion of warehoused debt is owed by 58,152 businesses (estimated average debt of circa €31,000). 10% of businesses owe more than €50,000 (estimated average of circa €250,000) and €90 million of debt previously warehoused by 831 businesses was determined as uncollectable due to liquidation.

The due date for payment of warehoused taxes is fast approaching and businesses have until May 1 2024 to either pay their warehoused debt in full, or agree a Phased Payment Arrangement (PPA). If there is no agreed PPA in place, all warehoused debt is due and owing on May 1 2024. A key component of a PPA is that it will likely include a minimum down payment of up 40% of the warehoused liability and agreement of same may impact tax clearances. Commenting on the level of warehoused debt, James Anderson, Turnaround & Restructuring Partner at Deloitte Ireland, said: “It is clear that the Revenue Commissioners remain very supportive to Irish business in helping them get back on their feet post Covid. This continued support is on the basis that business remains compliant with current Revenue returns and the number of businesses which have been revoked from the debt warehouse emphasises the importance of ongoing compliance. The number of businesses yet to agree a phased payment arrangement is surprisingly low and I would encourage those who have not yet agreed a PPA to engage with Revenue (or their advisors) before May 1 2024 to provide certainty going forward.”

Regional Focus
535 corporate insolvencies were recorded in Leinster in 2023, making up 81% of total insolvencies. This is a 37% increase compared to 2022, when 390 insolvencies (74% of total) were recorded in Leinster and is well above the national 25% increase. Munster and Ulster saw small decreases in insolvency activity in 2023, when compared with 2022. Munster recorded 73 (11% of total) corporate insolvencies in 2023, down from 91 in 2022. Connacht saw 39 (6% of total), up from 31 in 2022 and Ulster had 16 (2% of total), marginally down from 18 in 2022.

SCARP – what is it and how can it help?
Introduced in 2021, SCARP (Small Company Administrative Rescue Process) was designed to give protection from creditors to small companies that are struggling financially and are either unable or unlikely to pay their debts. Last year, there were 33 SCARP appointments; 78% of those were successful, saving around 211 jobs.

James Anderson said: “Given the high rate of successful outcomes to date, it is evident that SCARP is an effective process which provides SMEs with a timely and cost-effective opportunity to restructure. Awareness of the SCARP process (and its benefits) is still not yet widely considered by advisors and business owners/directors,6 but hopefully that will change with time. Its genesis is to provide viable businesses with an opportunity to restructure; however careful planning and compliance prior to considering/ commencing SCARP is fundamental. Acting early and speaking with your trusted advisors when experiencing financial difficulties on how to resolve legacy debts should be the priority of business owners and directors, as this affords more time and options to address matters.”

Small and micro companies account for 98% of all companies in Ireland and given the costs associated with examinership, only larger firms are likely to have the financial resources to implement. SCARP was created to give smaller businesses an opportunity to restructure their debts and provide a better outcome to creditors versus a liquidation scenario. “A SCARP process can be initiated once company directors pass a resolution appointing an insolvency practitioner or referred to a Process Advisor (PA) by the legislation. Prior to taking any engagement, the PA needs to ensure that the company has a reasonable prospect of survival. The PA begins engagement with all creditors and prepares a rescue plan which must satisfy the ‘best interest of creditors test’ and provide each creditor with a greater outcome than in a liquidation scenario,” says Stephen O’Flaherty, Partner at BDO Ireland. He added: “Relevant State creditors have the option to opt in or out of the scheme and they shall support viable businesses once they don’t have a chequered history.
“SCARP is designed to avoid oversight of the court system and it is possible to conclude the process without the courts involvement. In some circumstances, PA may need the direction of the court; some examples are repudiate a lease/contract; seeking a stay on a receivership or liquidation appointment; stay on any proceedings that were live at date of commencement; dealing with creditor objections to the rescue plan.

“Dealing with creditors objections is expected to be the issue that brings matters before the court most frequently. Creditors must set out the grounds in which they are being unfairly prejudiced, but the onus remains on the PA to demonstrate that the rescue plan is fair and equitable.”

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Michael McDonnell Managing Editor of Irish Construction Industry Magazine & Plan Magazine

Email: michael@irishconstruction.com      WWW.MCDMEDIA.IE