Brexits impact on Insolvencies

The date in which the UK is due to leave European Union is quickly approaching. Less than 100 days remain until Brexit is likely to occur. David Van Dessel, a partner at the consulting¬† group Deloitte, stated that if the UK ends up crashing out of the EU without a deal it could have a “material impact” on company bankruptcy levels throughout Ireland.

According to Deloitte, the impact of a hard Brexit on Irish businesses may not be apparent until the next year. In other words, the material impact will be more likely to be a depicted in 2020 insolvency statistics.

Van Dessel also discussed how directors are veery slow to ask for external assistance when their business is in the midst of financial troubles, especially family businesses. Family companies tend to deal with issues more privately. Generally, when a company is in trouble the common approach is to sell more, but the problem is normally much greater than lagging sales.

For companies directly effected by Brexit, the financial impact may be quick after implementation, but there will be a likely delay in the firm getting to insolvency. Due to the general lack of external advising for most businesses, it will make it harder to reach agreements with creditors.

The number of service sector firms filing for insolvency has increased over the past few months, and this trend is only expected to continue. The service sector contains industries like bars, restaurants, hotels and banking. According to figures from Deloitte, the service sector was responsible for two out of five insolvencies during the period. Insolvencies in the service sector have increased by 27% since last year.

Most of these companies are likely to be property holding businesses. According to Van Dessel, “businesses operating in the real estate and property sector were the most common industry affected by insolvency during the first half of 2019”.¬† The fewest number of insolvencies declared was in the manufacturing and IT sectors.

Ultimately, 310 businesses were declared insolvent during the first six months of 2019. This figure is down 29% as of last year. The most common form of addressing corporate insolvency was through creditors voluntary liquidation (CVL) for the first half of 2019. Two thirds of all corporate insolvency declared as of the first half of the year were CVLs.

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