The level of insolvencies among Irish businesses remains low but is growing fast, figures from the professional services firm Pricewaterhouse Coopers (PwC) suggest.
The firm is estimating that the “direct economic damage” — roughly the debts — of bust companies in Ireland could top €2 billion by the end of the year. However, if the rate of insolvencies returns to historically normal levels, the economic damage could hit between €6 billion and €7 billion, PwC said.
The firm’s Q3 insolvency barometer shows about 350 Irish companies went bust in the first none months of the year. The numbers in Q3 (July to September) were up 31 per cent on the previous quarter and were 49 per cent in advance of the same quarter in 2021, as the State’s Covid supports for business were unwound and companies are increasingly forced to stand alone.
While the level of insolvencies in Ireland currently is growing fast, it is still at historically a very low level. A little more than one company goes bust every day on average in Ireland, compared to the peak rate of five per day in 2012 after the financial crash. The rate in Ireland currently is barely one-third the rate of insolvencies in the UK.
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PwC’s report shows the recent surge in insolvencies is most apparent in Dublin, where the numbers in the three months to the end of September were up 80 per cent compared to the previous quarter. There were no insolvencies in Roscommon, Sligo, Waterford, Cavan or Laois.
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The total level of debts of bust businesses in the year so far is about €1.6 billion, PwC says. This will easily breach the €2 billion mark by the end of the year, it predicted. The rise in insolvencies is most apparent in businesses operating in the entertainment and hospitality sectors. Roughly one in every eight insolvencies is a business involved in the construction sector.
The figures also underline the slow start made by the State’s new low-cost scheme for restructuring the debts of bust smaller businesses, Scarp (small company administration rescue process). It accounted for only seven cases in Q3, or barely 5 per cent of the total. Despite this, PwC said it remains an important option for small businesses struggling under the weight of their debts.
Ken Tyrell, an insolvency specialist and partner at PwC, said the end of the State’s Covid-era tax warehousing scheme, under which 84,000 businesses have parked €3 billion of tax debts, will be significant in coming months.
“Discussions with Revenue on restructuring these debts will be hugely important for these businesses over the coming months,” he said.
He said that while inflation and energy costs were the most immediate issues facing businesses in terms of their solvency, rising interest rates would become much more important next year.
“In our view, there will continue to be significant pressure on the profitability and cash flow of many businesses through the winter,” he said, as he advised businesses to look to cut costs.
