No tsunami of insolvencies facing us from pandemic fallout, says Department of Enterprise

Appearing before an Oireachtas committee hearing today, Fiona O’Dea – a principal officer at the Department of Enterprise – pointed out that previous analysis by the World Bank indicated that it took 13 quarters for the impact of the financial crisis to be felt before there was a peak of liquidations.

‘The IMF ranks Ireland 14 out of 60 countries in its indicator for crisis preparedness’

“We are now in that time lag – three years on from the pandemic, and we are not seeing that tsunami coming at us,” she said.

“Even if there is a spike, it is worth noting that the IMF ranks Ireland 14 out of 60 countries in its indicator for crisis preparedness of insolvency regimes.”

Ms O’Dea said the PwC insolvency barometer shows that the current annual failure rate of Irish companies is 29 per 1,000 – below pre-pandemic levels. The rate in 2019 was 36 per 1,000.

“Obviously there has been an increase, but it still remains at historically low levels,” she said.

“The gradual return to pre-pandemic levels of insolvency is seeing a parallel upward trend in the number of companies availing of Scarp and examinership. The use of Scarp increased by 50pc in 2023, from 22 to 33 cases.”

Scarp – the small company administrative rescue process – was introduced during the pandemic to help firms that were financially sound but in temporary difficulties with creditors.

PwC Ireland and Deloitte both recorded a marked increase in insolvencies during the first quarter of the year.

PwC said there were 223, up by over a third on the same period in 2023 – and it predicted the total number of insolvencies will likely be close to 1,000 by the end of the year.

Deloitte Ireland concluded there are likely to be 800 insolvencies. It recorded 214 in the first quarter, up 47pc on the same period in 2023.

Revenue is ‘pleased’ with business engagement in the run-up to end of debt warehousing

The rate of business failures hugely declined during Covid as a result of an array of state supports, including the debt warehousing scheme operated by Revenue.

It had been expected that the insolvency rate would increase once those supports were wound down or removed, while business leaders have also warned that a raft of expensive new measures, including a rise in the minimum wage, would put further pressure on firms.

However, Ms O’Dea pointed out that the Central Bank’s financial stability review of 2023 did not raise alarm bells about insolvencies.

“That review notes that corporate insolvency has continued to rise from historical lows, but that this trend appears to relate primarily to firms that exited the pandemic in weak financial condition,” she said.

“It also reports that most companies entering insolvent liquidation in 2023 claimed wage subsidies during the pandemic.”

As of April 24, she said, 62 small companies had availed of the Scarp process, “resulting in a significant number of jobs being saved thus far”. Only 10 had failed to emerge.

At the same Oireachtas committee hearing, a Revenue official said it was pleased with the level of engagement from businesses in the run-up to the May 1 deadline for the debt warehousing scheme.

Only €200m of debt, involving 11,000 customers, had not been covered by a Phased Payment Arrangement (PPA) or been paid in full by the deadline, he said – but the number would probably decrease further this week as a number of Revenue customers had engaged with them by phone or online.​​​​​​​​​​​​​​