If ever a phrase has been overused over the past number of years, it is that “we live in uncertain times”. For those of us old enough (yes I did say old enough!) to have been involved in business since 2008, we have seen a number of significant world events within a relatively short period of time – a global recession, Brexit, the Covid pandemic and the war in Ukraine.
Such was the significance of these events that many anticipated a cliff edge of insolvencies to follow some time in 2022. But thankfully for most, the floodgates remained closed and the storm never hit with the force that was expected.
Several sectors have been under stress including hospitality, retail and construction. Significant increased running costs and higher interest rates have reduced the profitability that exists in these sectors which forms a major part of our own economy in Northern Ireland.
Despite these huge challenges, the insolvency market appears to have been very quiet over the past few years. The fears of another prolonged recession have not been realised. Are we now safe to say that the storms have settled and we have successfully escaped the vultures?
The Insolvency Service recently published that in April 2024 there were 33 company insolvencies registered in Northern Ireland, more than three times as many as (and 267% higher than) in April 2023. This was comprised of 12 Creditor Voluntary Liquidations (CVLs), 17 compulsory liquidations, 2 Company Voluntary Arrangements (CVAs) and 2 administrations. The most recent statistics from July 2024 show a 54% increase in company insolvencies when compared to July 2023. PWC Restructuring Insights for Q2 2024 show a 139.4% increase in insolvencies during this period when compared with Q2 2023.
Whilst the percentage increase of insolvencies has risen dramatically in the past 12 months, the numbers are still relatively small. A major reason for this is due to the fact the Bankruptcy Court in Northern Ireland imposed restrictions on the presentation of Creditors’ Winding Up Petitions (compulsory liquidations) (WUPs). WUPs were prevented from being issued between the commencement of the COVID pandemic in March 2020 until April 2023.
Furthermore, in the exception of cases where the creditor is HMRC, all WUPs require a court judgment, decree or other court similar court order prior to being presented. Previously, creditors could issue a WUP following service of a statutory demand requiring payment of the debt within 21 days. The combination of the additional costs of securing a court judgment and the 3-year restriction preventing the presentation of WUPs has clearly impacted upon the desire by company creditors to pursue payment from their insolvent debtors. Over the past year we have seen a steady increase in WUPs but in the vast majority of cases the creditor is HMRC. We expect to see a continued increase in WUPs in the next year and anticipate that the number of insolvencies will also continue to rise as a result.
The restructuring and insolvency market in Northern Ireland is distinct to the rest of the UK where numbers of insolvencies are now starting to level out and the trends suggest that 2023 was the peak, with insolvencies higher in that year than the previous 30 years! Perhaps the best way to describe the restructuring and insolvency market in Northern Ireland is that we are “catching up” and are probably at least 2-3 years behind our neighbours due to the bespoke NI restrictions described above. As such, we should expect the number of insolvencies to continue to steadily increase for at least the next few years.
According to the PWC Restructuring Insights for Q2 2024, the distribution of insolvency appointments by revenue class has not deviated from previous trends, with 98% of insolvency appointments occurring within the lower market segment, in businesses with annual revenues below £1 million. Smaller businesses continue to be the most vulnerable to insolvency, as they often have less capital and fewer financial reserves than larger companies.
As insolvencies continue to rise in Northern Ireland, there are several considerations for creditors that could help them to limit their exposure to bad debt at a time when cashflow challenges continue to increase within the SME market. For companies facing financial challenges, seeking advice now will maximise their chances of a successful restructuring of the business to ensure the future success of the business.
If you have any queries regarding the information provided above or would like any advice in relation to same, please don’t hesitate to get in touch with the Restructuring & Insolvency team at Mills Selig
Editorial prepared by Richard Craig, Partner and Head of Restructuring & Insolvency at Mills Selig and Kathryn McIvor, Associate, Litigation at Mills Selig
Richard Craig, Partner and Head of Restructuring & Insolvency
Richard advises insolvency practitioners, major lenders, companies, partnerships, and individuals on all aspects of restructuring and insolvency.
Richard brings extensive experience in disputes and litigation to his role. He frequently represents clients in the High Court, handling a wide range of insolvency proceedings.
T: 028 9044 5420
E: Richard.Craig@MillsSelig.com
W: millsselig.com/team/richard-craig/
Kathryn McIvor, Associate, Restructuring & Insolvency
Having gained a wide range of experience across a number of departments within the firm, Kathryn is currently working within the Litigation team with Mills Selig Partner, Emma Hunt, specialising in debt recovery actions.
Kathryn also assists Mills Selig partner, Richard Craig, as part of the Restructuring and Insolvency team, providing advice to companies, individuals and Insolvency Practitioners.
T: 028 9024 3878
E: Kathryn.McIvor@MillsSelig.com
W: millsselig.com/team/kathryn-mcivor/
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