No Match Found
The business failure rate per 10,000 companies decreased by 12% in Q1 2022 (3.7) compared to Q4 2021 (4.2). These rates remain very low, largely due to the Government pandemic supports still in place as well as creditor forbearance. At the same time, business failure rates increased by 19% in Q1 2022 compared to Q1 2021, which may point to an increased level of restructuring ahead. This is according to the latest PwC Restructuring Update for Q1 2022, following the firm’s inaugural report, ‘Act Now: From Recovery to Growth’, published in February 2022.
Ken Tyrrell, PwC Ireland Business Recovery Partner, said: “The current business failure rate remains at an artificial and record low. In our inaugural report, ‘Act Now: From Recovery to Growth’, we estimated that over 4,500 businesses were saved from going bust primarily as a result of the Government’s COVID-19 supports, with a number of these businesses essentially being put on life-support.
“Our analysis is based on a ‘per 10,000 companies’ measure, which is a simple and effective statistic for comparison purposes between different periods, industries, towns, counties and countries with different population sizes. It provides meaningful context to the numbers, rather than simply looking at them in absolute terms.”
The Irish business failure rate for the last 12 months per 10,000 companies is 15 per 10,000 to the end of Q1 2022. This remains at a record low, at levels not seen since 2005/2006. These figures remain well below the average over the past 17 years of 52 per 10,000 businesses, with a peak of 109 per 10,000 in 2012.
When Q1 2022 is compared to the same period in 2021, the business failure rate per 10,000 companies increased from 3.1 to 3.7. In volume terms, this represented an increase from 80 to 97 business failures.
The arts, entertainment and recreation sector continues to have the highest business failure rate at 81 per 10,000 companies over the past 12 months. During the first three months of 2022, the real estate sector had the greatest quarterly increase (230%) in failures per 10,000 (from six to 20).
Business failures in hospitality (three per 10,000) and retail (3 per 10,000) still remain lower than might be expected over the last 12 months. These are job-intensive sectors and will face challenges as the Employment Wage Subsidy Scheme (EWSS) tapers in April.
There have been no business failures in the energy and utility sector in the last 12 months. This is in contrast to the UK, where a number of companies in this sector have gone bust in the last six months.
Over the last 12 months, only two counties have had a business failure rate higher than the national average of 15 per 10,000. Dublin and Kilkenny both recorded an annual business failure rate of 24 per 10,000 companies. Cork continues to trend lower than most other larger counties with a business failure rate of 11 per 10,000 over the past 12 months. The counties that showed the highest quarterly increase in the business failure rate per 10,000 were Sligo (zero to nine), Monaghan (zero to six), and Clare (one to six). Nine counties didn’t record any business failures in Q1 2022 - Offaly, Westmeath, Kerry, Roscommon, Waterford, Donegal, Laois, Leitrim and Longford.
Over the past year, the UK has been running at 32 liquidations per 10,000 companies while Ireland has been running at 11 per 10,000 companies - nearly three times higher than Ireland. It is worth noting that UK Government pandemic supports tapered in Autumn 2021. From a review of the past 17 years, we know that Ireland’s liquidation rate tends to lag that of the UK by a few years.
Ken Tyrrell concluded: “Most business owners are very aware that the current economic environment is very fluid given the war in Ukraine, and businesses are facing some strong headwinds in the form of geopolitical uncertainty, higher energy costs and price inflation, continued supply chain issues as well as upward pressure on interest rates.”
“Our analysis shows that business failures in Ireland, while at current record low levels, have increased over the last 12 months. We expect a restructuring wave to hit Ireland, with an increased level of insolvencies in the later part of this year and in 2023.
“Also, albeit starting from an extremely low base, we expect an uptake in the use of the Small Company Administrative Rescue Process (SCARP) and examinership during 2022 and 2023 as the Government’s COVID-19 supports, such as the EWSS, expire and Revenue forbearance begins to end while other debts fall due.”
The iTRAXX Crossover Index, a reliable and commonly-used measure of volatility in global financial markets, continued to increase since the start of 2022 and peaked at 419 in early March 2022 (increasing significantly from 242 at end of the 2021). This is evidence of the volatility levels in global financial markets shortly after the war in Ukraine started. However, this peak is still well below the previous peak of over 1,100 during the global financial crisis over ten years ago.
The spread on the iTRAXX Crossover Index measures the cost of hedging against junk-rated companies defaulting on their debt.
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