1,000 Irish SME insolvencies expected by end of 2024

PwC urges companies with warehoused debt to agree a phased payment arrangement with Revenue before May deadline.

Insolvencies among Irish SMEs for Q1 2024 are up 41% from the same period last year and have more than doubled compared to Q1 2022, according to PwC’s latest Insolvency Barometer.

There is a slow return to pre-pandemic insolvency levels but still well below the 2012 peak.

“With a Covid debt overhang on top of having to deal with a high cost of doing business, some Irish businesses continue to struggle”

According to PwC, SMEs are experiencing the most casualties and hospitality, in particular, is feeling the pressure.

More than 5,000 businesses still owe €1.4bn in tax warehoused debt, at an average of €280,000 each. The top 200 companies owe an average of €2.5m each.

Insolvencies to surpass pre-pandemic levels

Q1 2024 insolvencies have also more than doubled when compared to Q1 2022 (102).  If this trend continues to the end of 2024, insolvencies will likely be close to 1,000 by the end of the year, exceeding pre-pandemic levels (2019: 850). 

There is a slow return to pre-pandemic insolvency levels but it is still well below the 2012 peak.

The current annual business failure rate in Quarter 1 2024 is 28 per 10,000 businesses compared to 36 per 10,000 businesses in 2019.  Although the current insolvency rate has doubled since 2021 (14), it remains well below the previous peak of 109 per 10,000 businesses back in 2012. 

SME liquidations continue to be the main driver of the increase in insolvencies, accounting for 85% of all insolvencies in Q1 2024. There were three times as many liquidations in Q1 2024 (189) as there were in the same period for 2022 (63). 

Looking at sectors, hospitality is being affected much more than retail.  For example, retail had 44 insolvencies in absolute numbers in Q1 2024.  However, reflecting the large number of restaurants having closed over recent months, hospitality (45 insolvencies) had over 3 times the equivalent business failure rate per 10,000 businesses (25) when compared to retail (8) in Q1 2024.

The hospitality and retail industries made up 40% of the total number of insolvencies in Q1 2024 (89 insolvencies), up from 68 insolvencies in Q1 2023.  This trend continues from 2022 and 2023 whereby hospitality consistently had one of the highest failure rates quarter on quarter.  The hospitality and retail sectors also have the most warehoused debt with Revenue. 

On the other hand, Arts, Recreation & Entertainment, and Education recorded no insolvencies in Q1 2024.

Time to grasp SCARP

Rescue processes (Examinerships and SCARPs) made up just 3% of insolvencies in Q1 2024. There were only 2 Examinerships and 5 SCARPs in Q1 2024. 

By comparison, there were two Examinerships and eight SCARPs respectively recorded in Q1 2023 (6% of total insolvencies). It is likely that these low numbers were impacted by the extension of the Revenue warehoused tax debt. 

However, a large number of businesses are still carrying a significant level of warehoused tax debt on their balance sheets and may still require the use of an Examinership or a SCARP process later in 2024.

Tax debt deadline

€1.7bn of tax debt remains warehoused by nearly 56,700 businesses. At the end of Q1 2024 just over 5,000 businesses owed 83% of the total €1.7bn owing. The average tax warehoused debt still owing by these businesses was €280,000 each.

In PwC’s inaugural report, ‘Act Now: From Recovery to Growth’ published in February 2022, it was estimated that over 4,500 businesses were saved from failure primarily as a result of the Government’s Covid supports, with a number of these businesses essentially being put on ‘life-support’. 

A recent Revenue update has indicated that the top 226 companies owe €570m in total, at an average of €2.5m each. 

The zero interest rate and additional time to 1 May 2024 to agree a phased payment arrangement by Revenue has provided some respite for businesses who are continuing to avail of this scheme. Although this May deadline is now fast approaching and Revenue have recently advised that where businesses do not engage, warehoused debt will be subject to “immediate collection” after May 1 and “possible enforcement”, with the standard interest rates of between 8pc and 10pc then applying to all debt owed. 

Retail (€392m), hospitality (€299m) and construction (€231m) comprised over half (54%) of the total warehoused tax debt that remains outstanding in Q1 2024. Retail and hospitality also had the highest number of insolvencies in Q1 2024. 

“With robust exchequer returns, a labour market that is buoyant and an easing of inflation, Ireland’s economy continues to perform well,” noted Ken Tyrell, Business Recovery Partner at PwC Ireland.

“Technological transformation, AI and climate change strategies are critical for long term sustainability for business.  However, headwinds remain, driven in part by subdued consumer demand, international and geopolitical tensions alongside a number of elections in Ireland and globally in the year ahead. 

“At the same time, with a Covid debt overhang on top of having to deal with a high cost of doing business, some  Irish businesses continue to struggle. It is apparent from our analysis that, in order for some of these businesses to survive at least in the short term, a large volume of businesses in the retail, hospitality and construction sectors (amongst others) will require some form of restructuring during 2024.

“The quicker these processes are tackled and a plan is put in place the better including, where applicable, agreeing a Phased Payment Arrangement  with Revenue. Viable businesses that cannot reach a phased payment arrangement with  Revenue will then need to urgently consider whether they need to avail of a formal restructuring process, such as a SCARP or examinership, to restructure their balance sheet,” Tyrell said.

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