No evidence of spike in Covid-related insolvencies – Central Bank

Study finds new company registrations for first nine months are 10% lower

Grafton Street in Dublin pictured during the first lockdown earlier this year. Photograph: Dara Mac Dónaill

Grafton Street in Dublin pictured during the first lockdown earlier this year. Photograph: Dara Mac Dónaill

 

Despite evidence of significant financial distress among Irish companies due to the Covid crisis, there has been no marked increase in corporate insolvencies to date, according to the Central Bank.

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

In a new economic letter published on Thursday, the financial regulator said the immediate impact of Covid-19 was a reduction in insolvent liquidations with the annualised rate exceptionally low at 0.07 per cent in April 2020, primarily because company directors were unable to convene creditors’ meeting to initiate a voluntary insolvency. The Oireachtas has since amended company law to allow meetings to be held virtually.

The insolvency rate reverted to pre-pandemic levels in June, as restrictions eased, the regulator said.

“Further restrictions to deal with the pandemic could have significant sectoral effects particularly for hospitality, leisure and non-essential retail,” the Central Bank said in its letter.

“As with future economic activity, the outlook for liquidations is highly uncertain and will be heavily dependent on the delicate balance between Government business supports, private-sector forbearance, the duration of the crisis and financial distress among firms,” it added.

New companies

The Central Bank recorded a marked reduction in new company registrations during March and May, when the first Covid-related restrictions were introduced. Registrations rebounded over the summer months and had returned to pre-pandemic levels by September.

Nonetheless, for the nine months to the end of September, new company registrations were 10 per cent lower than in 2019.

The largest declines in new company registrations by sector were in accommodation and food, and arts, recreation and other services, two categories that have been particularly hard hit by the Covid crisis. Registrations in these categories fell by 50 per cent in the March to May period.

Unsurprisingly, there has been an increase of new businesses trading online during the year-to-date, a trend also seen in other countries.

“Given the importance of new firms for employment, the evolution of firm registrations will be a key indicator during the pandemic and beyond,” the regulator said.