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Company registrations down on 2019, but no evidence yet of rising insolvencies

19 Nov 2020 / business Print

Registrations down, but no rise in insolvencies

New company registrations fell sharply across all sectors between March and May 2020, before rebounding over the summer, but remain below 2019 levels, the Central Bank has said.

Despite evidence of significant financial distress among firms, there is no evidence as yet of a marked increase in corporate insolvencies, the regulator says.

Government supports, loan payment breaks, forbearance from other creditors, and pre-existing financial buffers have likely held down the insolvent liquidation rate, it says.

A briefing note analyses trends in new company registrations and insolvent liquidations since the onset of the COVID-19 pandemic in March 2020, in light of the modest liquid asset holdings of many Irish firms.

Failure rates

The authors of the briefing note ask how the pandemic is affecting business dynamism and failure rates.

A marked reduction in new firm formation or a spike in insolvencies for viable firms could lower the productive capacity of the economy, the note says.

Declines occurred across all sectors, but were largest in accommodation and food and arts, entertainment and recreation.

The heightened uncertainty at the onset of the pandemic may have led to fewer new firms being created and stalled investment decision-making by pre-existing corporate groups. 

Conditions 

There is evidence in recent months of growth in registrations in the online and non-store retail sub-sectors, which suggests that certain sectors may be changing to meet altered operating conditions and consumer preferences. 

Given the importance of new firms for employment, the evolution of firm registrations will be a key indicator to investigate longer-term structural trends at a sectoral level beyond the pandemic, the regulator says.

Despite evidence of significant financial distress among firms, there is no evidence yet of a marked increase in corporate insolvencies.

Liquidations

Insolvent liquidations fell at the onset of the pandemic due to the inability of directors to convene creditors’ meetings safely, but returned to pre-pandemic levels over the summer.

While insolvent liquidations typically rise as the economy deteriorates, the cumulative effect of government supports, loan payment breaks, forbearance from other creditors, and pre-existing financial buffers have likely held down the insolvent liquidation rate.

The authors note that the insolvency trend documented in Ireland is similar to that experienced in other countries.

 

Gazette Desk
Gazette.ie is the daily legal news site of the Law Society of Ireland