Restructuring wave set to hit Irish business

Increased level of insolvencies expected in later part of year.

The business failure rate per 10,000 companies decreased by 12% in Q1 2022 (3.7) compared to Q4 2021 (4.2), according to PwC.

These rates remain very low largely due to the Government pandemic supports still in place as well as creditor forbearance.

“Businesses are facing some strong headwinds in the form of geopolitical uncertainty, higher energy costs and price inflation, continued supply chain issues as well as upward pressure on interest rates”

At the same time, business failure rates have increased by 19% in Q1 2022 compared to Q1 2021 which may point to an increased level of restructuring ahead.

Man in navy blazer, white shirt.

Ken Tyrell, PwC

This is according to PwC’s latest Restructuring Update Q1 2022, following the firm’s inaugural report ‘Act Now: From Recovery to Growth’, published in February 2022.

“The current business failure rate remains at an artificial and record low,” said Ken Tyrell, PwC Ireland, Business Recovery Partner.

“In our inaugural report, ‘Act Now: From Recovery to Growth’ published in February 2022, we estimated that over 4,500 businesses were saved from going bust primarily as a result of Government’s COVID supports, with a number of these businesses essentially being put on ‘life-support’.

“Our analysis is based on ‘a per 10,000 companies’ measure which is a simple and effective statistic for comparison purposes between different periods, industries, towns, counties and countries with different population sizes. It provides meaningful context to the numbers rather than simply looking at them in absolute terms.”

Are State supports masking the real picture?

The Irish business failure rate for the last twelve months per 10,000 companies is 15 per 10,000 to the end of Q1 2022.

“We expect an uptake in the usage of Small Company Administrative Rescue Process (SCARP) and Examinership during 2022 and 2023 as Government’s Covid supports, such as the EWSS expiring, and as Revenue forbearance begins to end while other debts fall due”

This remains at a record low, at levels not seen since 2005 and 2006. These figures remain well below the average over the past 17 years of 52 per 10,000 businesses, with a peak of 109 per 10,000 in 2012.

When Q1 2022 is compared to the same period in 2021, the business failure rate per 10,000 companies increased from 3.1 to 3.7.  In volume terms, this represented an increase from 80 to 97 business failures.

Business failures by sector

The arts, entertainment and recreation sector continues to have the highest business failure rate at 81 per 10,000 companies over the past twelve months. During the first three months of 2022, the real estate sector had the greatest quarterly increase (230%) in failures per 10,000 (from 6 to 20). 

Hospitality (3 per 10,000) and Retail (3 per 10,000) still remain lower than might be expected over the last twelve months. These are job intensive sectors and will face challenges as the Employment Wage Subsidy Scheme (EWSS) tapers in April.  

There have been no business failures in the energy and utility sector in the last twelve months. This is in contrast to the UK whereby a number of companies in this sector have gone bust in the last six months. 

The regional picture

Over the last twelve months, only 2 counties have a business failure rate higher than the national average of 15 per 10,000. Dublin and Kilkenny both recorded an annual business failure rate of 24 per 10,000 companies.

Cork continues to trend lower than most of the other larger counties with a business failure rate of 11 per 10,000 over the past twelve months.

The counties that showed the highest quarterly increase in the business failure rate per 10,000 were Sligo (0 to 9), Monaghan (0 to 6), and Clare (1 to 6).  9 counties didn’t record any business failures in Q1 2022: Offaly, Westmeath, Kerry, Roscommon, Waterford, Donegal, Laois, Leitrim and Longford.

Ireland v UK

The UK has triple the number of liquidations per 10,000 companies compared to Ireland.

Over the past year, the UK has been running at 32 liquidations per 10,000 companies while Ireland has been running at 11 per 10,000 companies, nearly three times higher than Ireland. It is worth noting that the pandemic supports from the UK Government tapered in Autumn 2021. From a review of the past 17 years, we have seen from the historic data that Ireland’s liquidation rate tends to lag a few years behind the UK. 

“Most business owners are very aware that the current economic environment is very fluid, given the war in Ukraine, and businesses are facing some strong headwinds in the form of geopolitical uncertainty, higher energy costs and price inflation, continued supply chain issues as well as upward pressure on interest rates,” said Tyrell.

“Our analysis shows that business failures in Ireland, while at current record low levels, have increased over the last twelve months.  We expect a restructuring wave to hit Ireland with an increased level of insolvencies in the later part of this year and 2023”

“Also, albeit starting from an extremely low base currently, we expect an uptake in the usage of Small Company Administrative Rescue Process (SCARP) and Examinership during 2022 and 2023 as Government’s Covid supports, such as the EWSS expiring, and as Revenue forbearance begins to end while other debts fall due.”

John Kennedy
Award-winning ThinkBusiness.ie editor John Kennedy is one of Ireland's most experienced business and technology journalists.

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