Business failure rate surprisingly low but surge likely

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The total number of corporate insolvencies in the first nine months of the year was 431 - a reduction, albeit very marginal - on the 439 recorded in the same period last year.

For many businesses, the recent imposition of a new round of strict measures to control the spread of coronavirus was seen as a step too far.

"State-backed initiatives to support struggling companies affected by the Covid crisis, as well as creditor forbearance, including forbearance from the banking sector, have played a major part in preventing an early surge in corporate insolvencies," David Van Dessel, a financial advisory partner at Deloitte explained.

"Even when all supports are factored in, around one-in-six [SMEs] is likely to be financially distressed into 2021 as a result of the effects of the pandemic," the Deputy Governor said. He says it will likely be well into next year before insolvencies emerge in larger numbers, a situation which he says would largely be in keeping with experience from previous downturns.

Next came retail, where 88 companies entered an insolvency process, followed by the hospitality sector, which recorded the third highest level with 70 incidences."Interestingly, there has only been a marginal increase in insolvency activity for the hospitality sector when compared to the same period in 2019," David Van Dessel said.

He anticipates that the first signs of movement will come from the property sector and landlords that can no longer afford to exercise a degree of forbearance. However, the third quarter of this year - July to September - saw a doubling of receiverships, to 25, compared to 12 in the same three-month period of last year.

"Most businesses will try to deal with their problems informally. No business goes into examinership unless they have to. It's not automatically for the asking for a business that just wants to rearrange its affairs. It's for businesses that need it."

 

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