State saved 4,500 firms from going bust during pandemic – report

At least 4,500 companies have been saved from going bust by the State's pandemic supports, but there is a "debt overhang" of at least €10 billion and many will need to restructure in the coming year, according to a new report by PwC.

The report, Act Now: From Recovery to Growth, examined 18,000 business failures over the past 17 years and used data analytics and statistical software to model the number of companies that would have failed during the pandemic had it not been for State supports.

Overall, the insolvency rate, which includes liquidations and receiverships, was 14 per 10,000 companies last year. That rate was down 87 per cent from its peak in 2012 when the State was still reeling from the financial crash.

PwC Ireland business recovery partner Ken Tyrrell, who wrote the report, said the sectors that benefited most from State support during the crisis were retail and hospitality.

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“Based on the relatively low rates of business failures in the retail and hospitality sectors during the pandemic, it is clear that many of the 4,500 companies are in these sectors,” he said.

“While they have not gone bust, many are on life support and will need additional support to repair their balance sheets as the service economy fully reopens.”

The report found that Kilkenny and Dublin had the highest rates of business failures last year at 25 and 24 per 10,000 companies respectively, while Cork had an average of 12.

The arts and entertainment sector was the worst hit with 85 insolvencies per 10,000 companies. It was followed by travel and transport (47), and then health (36).

The report said retail (8), hospitality (16) and construction (15) had a much lower than expected level of insolvencies, and suggested this may be indicative of State supports targeting those job-intensive service sectors.

At the other end of the spectrum, the lowest rates of insolvencies were in the information and communications, professional, scientific and technical sectors. The report said this was partly due to the ability of those workers to easily transition to working from home.

Comparison

Overall, Ireland’s liquidation rate was 11 per 10,000 companies compared with 26 in the UK. Over the past 17 years, the UK had historically tended to be 35 per cent higher than Ireland in terms of this metric, the report said.

The rate in Northern Ireland was 14, which was significantly lower than Scotland (32) and England/Wales (32).

The report warned there was currently a debt overhang of at least €10 billion made up of warehoused Revenue debt, loans in forbearance, supplier debt, landlords, rates and general utilities.

“This is likely to mean that further support will be required for certain sectors,” said Mr Tyrrell. “Many of the 4,500 companies identified earlier will recover while the economy fully reopens but some will need to proactively repair their balance sheets.

“Many of these companies will need to restructure their debts and will likely look to formal processes such as the Government’s recently launched SME restructuring process and traditional processes such as examinership. We expect to see a step-up in restructuring throughout the course of 2022.”