Company failure rates fall to 17-year low, but 'further support required'

PwC says pandemic supports kept at least 4,500 firms afloat and we should expect the number of companies going bust to rise

Revenue has, to date, parked around €3bn in Covid-impacted corporate and private tax debt as part of its debt warehousing scheme.

Additional supports will be needed to help companies repair their balance sheets, manage debt levels, and guard against any potential large increase in insolvency levels as the Covid crisis clears, a report has claimed.

A study by PwC has found that company failure rates in Ireland fell to a 17-year low last year as the Government’s Covid business supports propped up many sectors.

According to PwC, at least 4,500 companies have been saved from going bust during the Covid crisis due to the various pandemic supports. 

Roughly 1,000 companies went into either liquidation or receivership in the first two years of the pandemic — 600 in 2020, and 400 last year. On average over the past 17 years, 1,000 companies have failed each year.

Uptick in the number of firms going bust

PwC does not expect a tidal wave of businesses going bust once emergency supports are phased out but it expects an uptick, with an estimated debt overhang of “at least €10bn” existing and comprising debt warehoused with Revenue, loans in forbearance, supplier debt, and unpaid rent, 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, which have effectively been on life support, will recover while the economy fully reopens but some will need to proactively repair their balance sheets,” said Ken Tyrrell, business recovery partner at PwC Ireland.

He added that support needs to shift from an income supplement focus to one on debt and balance sheet restructuring.

“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,” he said.