Business failures in Ireland up 54% in the first half of 2023 compared to first half of 2022 - PwC’s latest Insolvency Barometer
By Ken Tyrrell, Business Recovery Partner, PwC Ireland
Insolvency levels are 54% higher in the first six months of 2023 when compared to the first half of 2022, rising to 321 business failures in 2023, up from 209 in the first six months of 2022. Q2 2023 insolvencies increased by 55% when compared to Q2 2022, rising to 172 business failures in Q2 2023, up from 111 in Q2 2022.
In the last 12 months ending June 2023, annual business failure rates increased by 79% to 25 companies per 10,000 compared to the historic low of 14 per 10,000 businesses recorded at the end of 2021. However, overall business failure rates remain low. The pre-pandemic insolvency level was 36 per 10,000 in 2019. This is according to PwC’s Q2 2023 Insolvency Barometer, published today.
6,000 companies that availed of Revenue Debt Warehousing Scheme still owe €1.9 billion
Business failure rates are likely to rise even further in the year ahead. PwC’s report reveals that over 6,000 companies that availed of the Revenue Debt Warehousing Scheme still owe €1.9 billion in total (around €300k on average) and will need to reach a phased payment agreement with Revenue before May 2024. Revenue recently announced that 510 companies which were eligible for its tax debt warehousing scheme have been liquidated in recent years with over €55 million of tax debt outstanding (€50m of this being warehoused). As we get closer to the May 2024 deadline, we expect this number to increase. Total warehoused debt represents around 2.5% of projected total exchequer receipts in 2023. In addition to the 6,000 companies with larger liabilities above owing €300k on average, a further 57,000 companies owe €0.3 billion in total, but at a much smaller level at an average of €5k.
Uptake low but 75% of SCARP processes have been successful
SCARP, in existence for the last 18 months, accounts for less than 5% of all insolvencies. SCARP appointments since inception remain low at 38 in total. SCARP applications may begin to increase as the 6,000 companies who availed of the Revenue Debt Warehousing Scheme enter into negotiations with the Revenue ahead of the May 2024 deadline. Approximately three out of every four SCARP processes have been successful since its inception.
Arts, entertainment and recreation sector experiencing highest failure rate
The arts, entertainment and recreation sector had a failure rate of nearly three times that of the national average over the past twelve months, with an annual failure rate in that time of 63 per 10,000 businesses. This rate is nearly three times the national average failure rate of 25 per 10,000 over the same period. The health and hospitality sectors had the next highest annual failure rates over the past year with 48 and 41 business failures per 10,000 respectively.
Dublin accounts for nearly half of all insolvencies in Ireland
Looking at the Counties, Dublin had the highest total number of business failures in Ireland with 50% of the total during the first six months of 2023. Dublin has, on average, accounted for approximately half of total insolvencies for the past number of years.
Monthly failures on the increase since the beginning of 2021
Monthly business failures are on the increase since early 2022. November 2022 saw the highest number of monthly insolvencies since the beginning of 2021 with 73 insolvencies registered. Meanwhile, the lowest number of failures was recorded in February 2022 with only 15 businesses failing.
International insolvency levels are picking up in the UK and the US
UK insolvencies increased by 40% year on year in May 2023. Since the start of 2023, the US has experienced the highest number of companies filing for bankruptcy in over a decade. Overall, total Chapter 11 filings increased by 105% to 680 filings from Jan-May 2023, up from 332 filings from Jan-May 2022.
The analysis reveals that business failure rates in Ireland are on the increase, although still at relatively low levels compared to pre-pandemic levels. Predominantly SME liquidations are making up nearly all of the increases and this is largely down to the impact of cost inflation, rising interest rates and legacy debt build up. Lender enforcement still remains low. And with so many companies availing of Revenue’s Debt Warehousing Scheme, we expect companies will look to formal restructuring processes such as examinership and SCARP to deal with legacy debts.”
In the face of general market disruption, geopolitical change and high profile challenges across different industries, businesses are feeling the effects of an uncertain market with restructuring activity rising and risk of shocks remaining in the market. Creating a cash-conscious culture is critical to ensure organisations can improve and accelerate their resilience to mitigate the impacts and flourish in the future. To achieve this, everyone in an organisation needs to be focused on cash. This is a collective responsibility from the Boardroom and across the business - not just the finance team or treasury to make decisions impacting cash.