Corporate insolvencies rise sharply as pandemic supports wear off

Experts say number of companies going bust will rise as tax bills become due and inflation kicks in

The number of corporate insolvencies, which plunged during the pandemic as the State propped up businesses, has started to increase, amid warnings that the number of companies going bust will rise further as inflation kicks in.

Figures compiled by Deloitte show that there were 253 company insolvencies in the first half of the year, an increase of 50 per cent on the same period a year earlier. The number of companies going bust was still almost one-fifth down on the first half of 2019, the last comparable period before the pandemic.

The rate is quickening, however, with the number of companies going bust in the second quarter of 2022 up 11 per cent on the first three months.

David Van Dessel, a financial advisory partner at Deloitte, acknowledged that the numbers remain “relatively low”. But he suggested that State pandemic financial measures, such as delays collecting tax, are still keeping a lid on the number of companies going bust.

“The ability to warehouse revenue debt during the pandemic has clearly provided vital breathing space for many SMEs impacted by pandemic restrictions, however, Revenue has signalled that it will begin to seek repayment of these debts in 2023,” he said.

Mr Van Dessel warned that the impact of inflation and rising energy costs still has to work its way through and will cause more companies to fail: “We expect these factors to influence the insolvency numbers over the coming 18 months.”

Deloitte said it is “noticeable” that two in every three companies going bust are in the services sector. Of these, about 70 per cent are in real estate/property or financial services — the number of these type of firms going under has doubled over the previous year.

About 20 of the 253 failed companies in the first half of this year, or 8 per cent, were in the entertainment, arts or media space. The level of retail insolvencies remained steady, with 19. Half of the companies going bust are less than 10 years old.

About two-thirds of the insolvencies were voluntary liquidations, while almost one-quarter were receiverships. Just 4 per cent were examinerships, where the process aims to save the company.

“The low uptake of the newly-introduced Scarp (small company administrative rescue) process — with only four appointments made to date — is likely a result of companies continuing to avail of the debt warehousing scheme,” said Mr Van Dessel.

“We expect more companies to avail of Scarp once these debts begin to be repaid.”

Mark Paul

Mark Paul

Mark Paul is Business Affairs Correspondent of The Irish Times. He also writes the Caveat column