PwC Restructuring Update — Q4 2023 — Press releases

Q4 of 2023 had the highest quarter of insolvencies since the pandemic
Finalised insolvency figures for 2023 (717) are higher than expected having increased by a third on 2022 (545) and have nearly doubled since 2021 (379)
Corporate insolvencies reach 2 per day in 2023, up from 1 a day on average in 2021 and forecast to move towards 3 per day in 2024
Business failures are on the rise, but still below pre-pandemic levels
Retail, Hospitality and Construction alone made up over half (51%) of all insolvencies in 2023. These three sectors also make up just over half of the Revenue warehoused debt with c €920 million outstanding
Although there are nearly 60,000 businesses with warehoused Revenue debt of €1.8 billion, 85% of the total warehoused debt is held by only 10% (c 6,000) businesses
An increased level of loan defaults within the commercial real estate sector is expected
Lender patience will be tested in 2024 as debt levels and interest rates continue to bite
There were 17 times more liquidations than SME SCARP rescues in 2023

Finalised insolvency levels rose by a third (32%) in 2023 compared to 2022 with 717 companies entering insolvency compared to 545 in 2022. In addition, there was a near doubling of insolvencies in 2023 compared to 2021 when there were 379 insolvencies, an increase of 89%.

Quarter 4 of 2023 had the highest quarter of insolvencies since the pandemic with 229 companies entering some form of insolvency. Q4 2023 insolvencies were also 44% higher than Q3 of 2023 and 19% higher than Q4 of 2022.

PwC expects further increases in the business failure rate in 2024 with overall insolvency levels projected to reach close to 1,000 - being closer to the average 20 year insolvency rate per year. Corporate insolvencies reached 2 per day in 2023, up from 1 a day on average in 2021 and are forecast to move towards 3 per day in 2024.

This is according to PwC’s Q4 2023 Insolvency Barometer, published today.

Business failures on the rise, but still below pre-pandemic levels

PwC’s latest Insolvency Barometer further reveals that business failures, though remaining below 2019 levels, are beginning to revert to pre-pandemic levels. For example, there was a significant increase in the insolvency rate in 2023 - reaching 27 per 10,000 companies compared to 36 per 10,000 in 2019 - but still well below the peak of 109 per 10,000 businesses in 2012.

Over the past 20 years, the average number of insolvencies per year is just over 1,000 per year. Ireland’s current insolvency rate per 10,000 companies is running at 25% of the 2012 peak.

Lenders still remain relatively patient in terms of enforcement and receivership levels

There has been a small increase in the number of lender initiated receiverships in 2023 but they still remain relatively low at just 105, an increase from 83 in 2022. Lender patience will be tested in 2024 as debt levels and interest rates continue to bite.

Retail, Hospitality and Construction made up over half of all 2023 insolvencies - pressure will increase in 2024

Retail, hospitality and construction are the most impacted sectors. The retail sector had the highest number of business failures in 2023 with 144, an increase of 50% from 2022. Hospitality was the next highest with 127 business failures in 2023, up 53% from 2022. With 97 business failures, construction was the third most impacted sector in 2023. Together, retail, hospitality and construction alone made up over half (51%) of all insolvencies in 2023.

There will be increased pressures on the retail, hospitality and construction sectors in 2024. In addition to accounting for over half of all insolvencies during 2023, these three sectors also make up just over half of the Revenue warehoused debt with c €920 million outstanding.

The Revenue Warehoused Debt Deadline will lead to more restructuring

Although there are nearly 60,000 businesses with warehoused Revenue debt of €1.8 billion, 85% of the total warehoused debt is held by only 10% (c 6,000 firms) of these businesses.

The deadline of May 2024 is fast approaching for these businesses to either repay the debt or reach a Phased Payment Agreement with the Revenue Commissioners. In the absence of any move to further extend this deadline, companies who can’t repay or reach an agreement with the Revenue are likely to require some form of restructuring and/or insolvency process.

At its peak during 2022 over €3 billion of tax debt had been warehoused by over 105,000 businesses.

SCARP and Examinership still under-utilised but usage likely to increase in 2024

There were only 33 SCARP appointments in 2023 representing just 5% of the total insolvencies. Examinerships were even lower again at 18 making up less than 3% of all insolvencies. By comparison, there were 17 times more liquidations than SCARPs during 2023. However, there is expected to be an increase in the number of SCARP and examinerships in 2024, albeit from very low levels.

Small and mid-size companies continue to be the main driver of insolvencies

Almost all (99%) insolvencies during 2023 were SMEs which represents the main driver behind the overall increase in insolvency levels. SMEs will continue to make up most insolvencies in 2024. Most of the distress arising in the future will be from SMEs and particularly smaller businesses.

UK has a record level of insolvencies

In 2023, with their numbers due to be published shortly, the UK is expected to have the highest number of insolvencies since 2009 whilst its equivalent liquidation rate per 10,000 companies remains double that of Ireland.

Dublin, Cork and Meath account for two-thirds of all insolvencies

For the third year running Dublin had the highest number of business failures at 47 per 10,000, accounting for 398 of the total 717 insolvencies recorded in 2023. In overall numbers Dublin, Cork (54) and Meath (34) comprised two-thirds (68%) of all 2023 insolvencies.

Ken Tyrrell, Business Recovery Partner, PwC Ireland, said: “With global and local continued economic uncertainties, an upcoming year of elections across Ireland, the EU, UK and the US, the high cost of doing business in Ireland coupled with having to tackle climate and transformation agendas, many businesses continue to operate in a challenging environment. Restructuring activity is rising in the face of this continued disruption.”

“We expect insolvencies in 2024 to reach close to 1,000. Most of the distress will be from SMEs and particularly smaller businesses. The Revenue Warehoused Debt Deadline in May 2024 will also lead to more restructuring. Retail, Hospitality and Construction will continue to be the most important sectors to watch in terms of insolvency levels and in terms of their agreement on the upcoming Revenue debt warehousing deadline.

“An increased level of loan defaults within the commercial real estate sector is also expected. Already the impact of increased interest rates and the resultant decreases in commercial property values have taken effect in 2023 prompting an increase in lender initiated receiverships. Borrowers will be under continued pressure due to the risk of Loan To Value covenant breaches as well as higher interest repayments leading to an increasing level of loan defaults.

“Lender patience will be tested in 2024 as debt levels and interest rates continue to bite. Larger companies with significant debt are expected to struggle due to higher interest rates. Any companies seeking to refinance in 2024 will face a more challenging lending environment particularly in the commercial real estate sector.”

Notes to editors:

Over 4,500 businesses saved as a result of Government COVID supports

In PwC’s inaugural report, ‘Act Now: From Recovery to Growth’ published in February 2022, it was estimated that over 4,500 businesses were saved from failure primarily as a result of the Government’s COVID supports, with a number of these businesses essentially being put on ‘life-support’.

Why we use a per 10,000 business measure - Business Failure Rate

PwC’s analysis is based on a per 10,000 measure. It is also widely used when comparing the birth or death rates across different regions or countries. It is a simple yet effective statistic for comparison purposes between different periods, industries, towns, counties or countries with different population sizes. It provides meaningful context to the numbers rather than simply looking at them in absolute terms.

SCARP stands for Small Company Administration Rescue Process. The small company rescue process (“SCARP”) was enacted by the Government to provide an alternative restructuring tool for businesses commencing in December 2021.

Creating a cash-conscious culture is critical to ensure organisations can improve and accelerate their resilience to mitigate the impacts and flourish in the future. To achieve this, everyone in an organisation needs to be focused on cash. This is a collective responsibility from the boardroom and across the business - not just the finance team or treasury to make decisions impacting cash.

About PwC

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 151 countries with over 360,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at pwc.com.

PwC refers to the PwC network or one or more of its member firms or both, each of which is a separate legal entity. Please see pwc.com/structure for further details.