As restrictions ease and businesses fully open again, what does the future hold for Irish insolvencies? Ken Tyrrell explains.  

Given the hardship businesses have faced over the past two years, a rise in insolvencies in Ireland would be no surprise. A recent PwC report examining 18,000 business failures over the past 17 years sheds further light on the current state-of-play for companies around the country. 

Measuring the correlation between key economic indicators and other trends with rates of insolvency, the report found that Government pandemic supports saved at least 4,500 Irish companies from going bust during the pandemic, representing an average of 50 companies per week during the period.

A new enhanced measure for business failures developed as part of the research identified the ‘insolvency rate per 10,000 companies.’ When looking at business failures per 10,000 companies per county in Ireland, Kilkenny had the highest number of insolvencies in 2021, with 25 business failures per 10,000. Dublin ranked second with 24. Cork averaged 12 failures per 10,000 companies.

Irish insolvency rates

Overall, the Irish insolvency rate (number of liquidations and receiverships per 10,000 companies) stood at 14 in 2021, down 87 percent from its 2012 peak of 109 per 10,000 companies.

The arts and entertainment sector was the most heavily impacted last year, with 85 insolvencies per 10,000 companies. Other sectors to feature at the higher end of the scale included travel and transport (47) and health (36).

The research shows that retail (8), hospitality (16) and construction (15) had a much lower than expected rate of insolvency, an indicator that Government supports targeting these job-intensive service sectors were effective.

At the other end of the spectrum, analysis of the report shows that the lowest insolvency rates per 10,000 in 2021 were in the information and communications, professional, scientific and technical sectors.

This is likely due to the strong performance of FDI-heavy sectors, and the ability of people employed in these industries to transition to working from home during the pandemic. 

Comparing the Irish results with those of our UK neighbour, Ireland’s rate of liquidation in 2021 (11 per 10,000 companies) was significantly lower than the corresponding UK figure of 26. The analysis also revealed that, over the past 17 years, the liquidation rate in the UK has historically trended 35 percent higher than in Ireland.

Debt overhang of at least €10 billion 

The pandemic and its successive lockdowns have certainly resulted in many businesses struggling to survive. PwC estimates that there is currently a debt overhang of at least €10 billion among SMEs in Ireland, made up of warehoused revenue debt, loans in forbearance, supplier debt, landlords, rates and general utilities. 

Small Company Administrative Rescue Process (SCARP) 

Based on the relatively low rates of business failure in the retail and hospitality sectors during the pandemic, it is clear that many of the 4,500 companies buoyed by the Government’s COVID-19 supports are in these sectors. While they have not gone bust, many are on life support and will need additional financial support to repair their balance sheets as the service economy fully reopens.

Some businesses will agree to new terms with lenders and trade suppliers. Others will need to repair their balance sheets proactively. Many of these companies will need to restructure their debts and will look to formal processes such as the Government’s recently launched SME restructuring SCARP process, as well as traditional processes such as examinership.

I expect to see a step-up in restructuring activity throughout 2022. As businesses recover and the economy fully reopens, critical areas for review will be liquidity, working capital and new funding avenues to finance growth. 

Ken Tyrrell is Business Recovery Partner at PwC. Read the full PwC report.