Covid supports 'holding back tide on corporate insolvencies'

The number of small business failures could jump when the Government's Covid supports come to an end. Picture: Brian Lawless/PA
  

Company insolvencies are running at over a third below their normal levels which suggests the number of small business failures will jump when the Government's Covid supports come to an end.    

The figures are based on the number of insolvencies tracked by Deloitte, which finds there were only 278 company failures so far this year, up to the end of September, significantly lower than the 431 insolvencies in the same period last year. 

However, there were 109 corporate insolvencies in the latest three months, which was "notably" higher than the 58 cases recorded a year earlier. That has raised concerns about a sharp increase in failures when the Government eventually pulls its Covid supports for businesses. 

“We are still in a position where Covid supports and creditor forbearance are probably holding back the tide on corporate insolvencies," said David Van Dessel, who is a partner in financial advisory at Deloitte.

"With the anticipated removal of Government supports after the year-end and beyond, the first half of 2022 might begin to reveal the true economic impact on the SME sector," said Mr Van Dessel. 

The Central Bank noted last week that while the number of people on the pandemic unemployment payments had fallen sharply, to around 100,000, the number of employees, at around 320,000, whose companies are availing of the employment wage subsidy scheme, has remained at an elevated level during the course of the pandemic.   

Troubled SMEs

Deloitte said it hopes the new so-called small company administrative rescue process, or Scarp, for troubled SMEs will help many survive. 

“Our hope is that the Scarp process will ease the burden on many SMEs in difficulty as the safety net of Government supports is removed,” said Deloitte.  

For the latest three months, financial services, construction, as well as the health, fitness, and beauty sector and hospitality, were among the areas that posted significant numbers of failures. 

Rents may cause retail firms to close, Deloitte also warned. 

By region, most insolvencies were in Leinster, followed by Munster, Connaught, and Ulster.