Declining insolvencies 'signal black hole of corporate debt' for Northern Ireland
A MASSIVE decline in corporate insolvencies this year is said to be a warning sign that businesses in the north are facing a "black hole of debt and payment defaults" in 2021 worth hundreds of millions of pounds.
New data from insolvency score analysts Red Flag Alert, which has been collecting real-time data on every business in the north since 2004, shows there were 349 corporate insolvencies in the region last year compared to just 102 so far in 2020.
Insolvencies in 2019 saw the closures of businesses generating £183 million in sales and employing nearly 2,500 people.
Corporate failures so far this year have wiped-out companies with sales totalling more than £49 million and employing 785 people.
But Kieron Kent, head of business development for Red Flag Alert in Northern Ireland, says government Covid-19 support means the lower level of corporate insolvencies is no real surprise.
“But if we compare current levels to those in 2019, a year where we saw economic growth, it's genuine cause for concern for Northern Ireland businesses and the economy, and something they should be proactively monitoring,” he said.
“Northern Ireland businesses are facing another unique challenge in the form of the uncertainty the end of the Brexit transition will create, which, added to the ongoing disruption of the pandemic, forms a perfect storm.
“It's difficult to know exactly how much these events will cost businesses, but the data indicates that insolvencies in 2021 will significantly top last year.”
The data shows that 49 per cent of Northern Ireland's unsecured corporate creditors are experiencing some form of financial distress. These are companies with either county court judgments (CCJs) filed against them or which are showing a consistent deterioration in financial performance including working capital, financial liabilities and losses.
Mr Kent adds: “There's a high number of companies already struggling to balance the books, which will become increasingly difficult for them when government support ends and they then have to contend with the complications, delays and costs of a post-Brexit trading environment.
“These are companies with financial liabilities propping-up other businesses and the reality is that a black hole will suck hundreds of millions of pounds out of supply chains as insolvencies start to hit home.
“All Northern Ireland business sectors and their suppliers badly need more time to prepare for the ill-examined and under-reported changes Brexit will bring.
“Import and exports direct to the EU from Northern Ireland and via the Republic of Ireland are the lifeblood of many businesses, and there's a serious lack of awareness of just how much post-Brexit barriers will jeopardise cross-border trading.
“Data from the next two quarters will unfortunately provide a more accurate indication of what we expect from corporate insolvencies in 2021 and 2022, and what these will cost the local economy in terms of lost output and jobs.”