Rate of insolvencies are set to rise amid ‘significant pressure’ on Irish businesses, according to new report

For the year to date, over 350 companies have declared insolvency with associated debts outstanding of in excess of €1.6bn.

The current business failure rate is currently 18 per 10,000 companies in the year to June.

The average rate over the past 17 years was 53 per 10,000 companies.

During 2012, this rate peaked at 109 per 10,000, while in 2021, this figure was 14 per 10,000.

Despite the historic lows, PwC estimates that direct economic damage from business failures in Ireland could still total over €2bn for 2022.

However, the group warned that the direct economic damage could soar to €6bn if businesses continue to face an increase in economic challenges over the coming months.

PwC business recovery partner Ken Tyrrell said that, despite the supports introduced in the Budget last week, businesses are currently facing a number of difficulties in the form of rising inflation, interest rates and energy costs this winter.

“In our view, there will continue to be significant pressure on the profitability and cash flow of many businesses through the winter,” he said.

“The focus should be on performance improvement and cost reduction.”

Business failures rose 31pc in the third quarter of the year compared to the quarter prior. This also marked a 49pc increase compared to the same quarter in 2021.

Businesses in the arts, entertainment and recreation sectors, as well as in hospitality, were particularly impacted in the third quarter of 2022. Business failures in these sectors almost doubled during Q3 compared to Q2.

PwC also reported that one in eight insolvencies recorded over the past year were related to construction.

Dublin recorded the highest business failure rate during the third quarter, a rise of 80pc compared to the second quarter.

However, there were no business failures recorded in Roscommon, Cavan, Laois, Waterford and Sligo last quarter. As of July of this year, 84,000 businesses across Ireland were still availing of the Revenue debt warehousing scheme for a total amount of almost €3bn, PwC reported.

Mr Tyrell pointed to the importance of discussions with Revenue on restructuring these debts for businesses over the coming months as many companies focus on tackling existing challenges.

“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,” he said.

Earlier this year, PwC reported that over 4,500 businesses were saved from insolvency due to the government’s Covid supports.

The current liquidation rate in the UK is now three times higher than that in Ireland. The data shows that the UK is recorded a rate of 36,000 per 10,000 for the year ended June 2022.

The liquidation rate here was 12 per 10,000 for the same period.