Insolvencies climb 'substantially' as businesses struggle with cost pressures

Small businesses are increasingly trying to restructure due to cost pressures including inflation and energy, in addition to trying to recover from the impact of the pandemic.

Irish businesses are struggling to battle economic headwinds as corporate insolvencies rose “substantially” during the first half of the year.

The total number of corporate insolvencies forecasted was 378, according to statistics published by professional services firm Deloitte. This is a 36% increase from the same period in 2021.

“Rising inflation, higher interest rates and spiralling energy costs are likely to increase pressure on businesses over the coming months,” said David Van Dessel, partner at Deloitte.

Small businesses are increasingly trying to restructure due to cost pressures including inflation and energy, in addition to trying to recover from the impact of the pandemic.

“The recent news that the Revenue Commissioners are now issuing payment demands against businesses who are in default on current taxes, including businesses who availed of the warehoused debt facility during the pandemic, will place further distress on those businesses and may further accelerate the increase in insolvency activity,” said Mr Van Dessel.

Professional services firm Deloitte said it has seen a sharp increase in the uptake of the small company administrative rescue process (Scarp) in August. There were six Scarp appointments last month. The total number of Scarps this year is 10.

“In addition, consumers impacted by inflation and interest rate increases may also reduce their discretionary spending, further exacerbating downward economic pressures,” he added.

The increase in small business owners using the Scarp scheme was predicted earlier this year by another professional services firm 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 PwC partner Ken Tyrrell in July.

Deloitte said the services sector is projected to account for the highest proportion of corporate insolvencies by the end of Q3, with 195 insolvencies, representing 52% of total insolvencies recorded so far this year and up from 46% in 2021.