The number of companies filing for insolvency across Ireland has climbed by more than 50% over the past 12 months, but levels still remain below forecasts as organisations continue to show resilience in the face of economic headwinds.
According to new analysis from Interpath Advisory, a total of 499 insolvencies were reported in the first three quarters of the year - significantly ahead of the same period in 2022, which saw 327 insolvencies.
Ken Fennell, Managing Director at Interpath Advisory Ireland, said: “A sharp uplift in insolvencies was predicted by many commentators following the unwinding of the government’s COVID-19 support schemes. However, this has not materialised and instead, the increase in corporate failures has been much more steady. This is perhaps a little surprising, given the various headwinds seen in recent times, from interest rate increases, sticky inflation and a cost-of-living crisis, coupled with geopolitical turmoil in Ukraine and now the Middle East.”
A number of factors have contributed to lower-than-expected insolvencies, not least of which is the Revenue Debt Warehousing Scheme which was introduced in response to trading restrictions put in place during the COVID-19 pandemic, and which allowed certain tax debts to be ‘parked’ on an interest free basis for 12 months following the resumption of ‘normal’ trading.
At its peak in January 2022, some 103,200 taxpayers had warehoused a total of €2.988 billion. By April 2023, 39,609 taxpayers had ceased to avail of the scheme, with 63,591 taxpayers warehousing €2.214 billion. Recently published statistics from Revenue as at August 2023 show a further decrease in warehoused debt at €1.905 billion warehoused by 59,546 taxpayers.
The scheme has been extended on several occasions, both in duration and in scope, and the initial interest free period is now replaced by interest at 3%. This represents an unintended inexpensive finance facility for many businesses, and as such, arguably has contributed to an artificially low level of insolvencies. The scheme does not expire until May 2024.
Another factor which has dampened corporate insolvency levels is continued forbearance from other creditors, including lenders and landlords, who have preferred forbearance and restructuring to enforcement, however, we may see appetite for forbearance to start to wane.
This, coupled with rising interest rates, high cost inflation and fragile consumer confidence means that the number of companies filing for insolvency in Ireland could continue to rise.
Brendan O’Reilly said: “The Irish economy has continued to show remarkable and indeed admirable resilience, however, businesses should be mindful of the persistent headwinds that continue to gather and how these could negatively impact their ability to continue trading. In particular, we would point to the likelihood of a prolonged high interest rate environment as a major concern and this, coupled with stubbornly high inflation, could pose a genuine risk to growth.”
Ken Fennell concluded: “Based on our own conversations with clients here at Interpath, the next 12 months is expected to be a much busier time for insolvency professionals. As always, we would advise companies facing challenges to act quickly. The Irish Restructuring regime allows for a broad range of solutions that can help companies facing difficult times.”
