Insolvency levels in Ireland have surged in the past year as government supports related to the Covid-19 pandemic wind down and the cost of doing business continues to rise in an inflationary environment, according to a new report. The latest Insolvency Barometer by professional services firm PwC revealed that business failures increased by 33% in the first nine months of this year compared to the same period in 2021.
PwC Ireland’s business recovery partner, Ken Tyrrell, highlighted the challenges faced by businesses in an uncertain market, stating, “In the face of market disruption, geopolitical change, and high-profile challenges across different industries, businesses continue to feel the effects of an uncertain market, with restructuring activity rising and risk of shocks remaining.”
PwC estimated that the total number of insolvencies for 2023 will be around 650, compared to 539 in 2022. The final three months of the year are typically the busiest period for business failures. Mr. Tyrrell noted that the build-up of debt warehousing is expected to increase business failure rates as companies seek to negotiate with Revenue ahead of the May 2024 deadline.
The arts, entertainment, and recreation sector, as well as the hospitality sector, continue to experience significant business failures. The retail sector has seen the highest number of business failures, with 116 recorded so far this year, according to the report. In total, there have been 352 insolvencies in 2023, representing a 79% increase compared to 2021 levels.
However, the report also highlighted that the current annual failure rate remains relatively low compared to 2019 levels. Currently, there are 25 insolvencies per 10,000 companies, while the pre-pandemic level was 36 per 10,000.
A separate report by PwC revealed that over 4,500 businesses were saved as a result of government pandemic supports, with many of these businesses essentially being kept on “life-support”. The withdrawal of these supports earlier this year led to a rise in business closures, as many “zombie businesses” that were not viable were no longer able to sustain their operations, according to economist Jim Power.
In conclusion, the rising insolvency levels in Ireland are a reflection of the challenges faced by businesses in the current economic climate. As government supports are phased out and the cost of doing business continues to rise, companies across various sectors are experiencing financial difficulties. The coming months are expected to see a further increase in insolvencies as businesses grapple with debt warehousing and negotiations with Revenue.