Call for more Government supports to help repair balance sheets.
Government pandemic supports have saved at least 4,500 Irish companies from going bust. This represents an average of 50 companies saved every week during the pandemic.
This is according to new PwC analysis, the findings which are presented in the report ‘Act Now: From Recovery To Growth’ published today (8 February 2022).
“While they have not gone bust, many are on life support and will need additional support to repair their balance sheets as the service economy fully reopens”
In what it claims represents the most comprehensive review of Irish insolvencies, PwC examined 18,000 business failures over the past 17 years and measured the correlation between key economic indicators and other trends with the rate of insolvencies.
Firms are on life support
In a new enhanced approach to analysing business failures in Ireland, using data analytics and statistical software, PwC modelled the number of companies that would have failed during the pandemic had it not been for Government supports.
Ken Tyrell, Business Recovery partner at PwC Ireland and author of the report said that this is the first time that this type of analysis has been carried out in an Irish context.
“Based on the relatively low rates of business failures in the retail and hospitality sectors during the pandemic, it is clear that that many of the 4,500 companies are in these sectors. While they have not gone bust, many are on life support and will need additional support to repair their balance sheets as the service economy fully reopens.”
For the first time ever, PwC’s analysis also allows the direct comparison of insolvency metrics across jurisdictions, industries and counties including the ability to compare Irish liquidation rates directly to England, Scotland, Wales & Northern Ireland.
When looking at counties, Kilkenny and Dublin saw the highest rate of business failures in 2021
As part of the research, PwC developed a new enhanced measure for business failures ‘Insolvency rate per 10,000 companies’.
“When we looked at business failures per 10,000 companies per county in Ireland, Kilkenny had the highest number of insolvencies, with 25 business failures per 10,000 companies – higher than Dublin at 24. Cork performed well averaging only 12 insolvencies per 10,000 companies, half of Dublin’s rate,” Tyrell said.
Overall, the insolvency rate (liquidations & receiverships) per 10,000 companies was 14 in 2021, which was down 87% from its peak in 2012.
How sectors fared
Not surprisingly, Arts & Entertainment is the industry with the highest insolvency rate
PwC’s research further revealed that, in terms of insolvencies per 10,000 companies by industry, the Arts & Entertainment sector was the worst sector impacted by far – with 85 insolvencies per 10,000 companies in 2021. This insight would have been completely missed if only looking at absolute numbers of bigger sectors and not at the rate per 10,000 companies.
Arts & Entertainment is followed by Travel & Transport (47) and Health (36). The research shows that Retail (8), Hospitality (16) and Construction (15) had a much lower than expected level of insolvencies per 10,000 companies. This may be indicative of government supports targeting these job intensive service sectors.
At the other end of the spectrum, due to the strong performance of the FDI sector and the ability of these workers to easily transition to working from home during the pandemic, PwC’s analysis shows that the lowest rates of insolvencies per 10,000 during 2021 were in the Information & Communications, Professional, Scientific & Technical sectors.
Overall, Ireland’s insolvency rate for 2021 was 11 liquidations per 10,000 companies. In the UK, the comparable rate is 26 liquidations per 10,000 companies, nearly double Ireland’s rate. PwC’s analysis revealed that over the past 17 years, the UK has historically tended to be 35% higher than Ireland in terms of insolvencies per 10,000 companies.
Interestingly, the liquidation rate on the island of Ireland is converging over recent years and in 2021 the Northern Ireland rate – at 14 per 10,000 – is trending more like the Republic of Ireland and lower than Scotland (32) and England/Wales (32).
PwC estimates that there is currently a debt overhang of at least €10bn made up of warehoused Revenue debt, loans in forbearance, supplier debt, landlords, rates and general utilities.
“This is likely to mean that further support will be required for certain sectors and many of the 4,500 companies identified earlier – which have effectively been on life support – will recover while the economy fully reopens but some will need to proactively repair their balance sheets,” Tyrell said.
“Many of these companies will need to restructure their debts and will likely look to formal processes such as the Government’s recently launched SME restructuring SCARP (Small Company Administrative Rescue Process) process and traditional processes such as examinership. We expect to see a step-up in restructuring throughout the course of 2022.”