Business closures could rise with the end of pandemic supports

Ireland currently has low levels of business failures, but professional services firm has predicted clouds on the horizon, in a new report.

A rise in restructuring activity will lead to an increased level of business failures at the end of this year and into 2023, claims new research.

Ireland currently has low levels of business failures, but professional services firm has predicted clouds on the horizon, in a new report.

The ceasing of pandemic related supports for business will contribute to an increase in business failures, said PwC.

“We are now seeing business failure levels slowly but steadily increasing, albeit still from a very low base” said Ken Tyrrell, PwC Ireland business recovery partner.

“The economic supports that were put in place during the pandemic have now been removed, most notably the Employment Wage Subsidy Scheme (EWSS).”

“Similar supports were removed in the UK during Autumn 2021, followed by a very significant pick up in liquidations in the following two quarters,” he said.

It remains to be seen for how long those organisations under financial pressure in Ireland can stay in business.

There was a 58% increase in the number of SME liquidations in Q2 compared to Q1, which was the primary driver in the overall increase in the business failure rates. This trend is expected to continue in the second half of 2022.

Overall, the rate of business failures is at record low levels in Ireland. The business failure rate was 16 per 10,000 companies over the last year to June 2022. 

This rate is much lower than the average rate over the past 17 years of 52 per 10,000 businesses, with a peak of 109 per 10,000 in 2012.

Earlier this year, PwC estimated that more than 4,500 businesses were saved from closing due to government supports introduced during the pandemic.

In term of failures per county, Kilkenny had the highest business failure rate this year as it recorded 13 business failures per 10,000 businesses in Q2 compared to two per 10,000 in Q1. 

Dublin recorded a marginal decrease in insolvencies in Q2 compared to Q1 as it saw failures fall from seven per 10,000 in Q1 down to 5 per 10,000 in Q2. 

There were no business failures recorded in Carlow, Donegal, Leitrim, Longford, Mayo, Sligo, Tipperary and Wexford in Q2.

Business availing of the small company rescue process (Scarp) remains very low with only three businesses recorded using it to date, claimed PwC.

“Over the remainder of this year and into 2023, we expect that an increasing number of businesses will avail of the Scarp restructuring tool, as well as the under-utilised examinership process, as they seek to deal with legacy debts that they have little or no prospect of repaying,” said Mr Tyrrell.