Insolvencies rise in arts and hospitality as businesses battle soaring costs

The failure rate in both of these sectors almost doubled during Q3 when compared to the previous quarter, according to a new report.

The cost of business failures is set to reach €2bn for the year.

The arts and hospitality sectors recorded the highest rate of business failures in the last quarter, according to a new report.

The failure rate in both of these sectors almost doubled during Q3 when compared to the previous quarter, according to a report by professional services firm PwC.

“There will continue to be significant pressure on the profitability and cash flow of many businesses through the winter,” said Ken Tyrrell, business recovery partner with PwC.

In a separate recent report, 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.

The cost of business failures is set to reach €2bn for the year as on average one company is failing every day in Ireland, showed the PwC report.

It also suggested that the cost of business failures could rise to between €6bn and €7bn if insolvencies rise to their long term norms.

Business are coming under increasing pressure due to economic headwinds such as inflation, soaring energy bills and interest rate hikes.

“Businesses will be carefully assessing whether they can generate enough cash to cover ongoing liabilities in addition to making repayments of historic debts such as parked tax liabilities,” said Mr Tyrrell.

Around 84,000 businesses were still availing of the Revenue debt warehousing scheme created during the pandemic, for a total amount of nearly €3bn.

“Discussions with Revenue on restructuring these debts will be hugely important for these businesses over the coming months,” said Mr Tyrrell.

Over 350 companies have declared insolvency with associated debts outstanding of in excess of €1.6bn during 2022.

Business failures climbed 31% in Q3 compared to the previous quarter. They rose 49% compared to the same period last year.

However, the number of business failures in Ireland remains at historically low levels. The country’s current business insolvency rate is running at 17% of the peak rate in 2012, post financial crash.

The business failure rate was 18 per 10,000 companies over the last twelve months to the end of June 2022. This rate is much lower than the average rate over the past 17 years of 53 per 10,000 businesses, with a peak of 109 per 10,000 in 2012.

PwC said it has seen an increase in the uptake of the small company administrative rescue process (Scarp). There were six Scarp appointments in August. The total number of Scarps this year is around 10.