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Wave of bankruptcies “on its way” as government support is removed and corporate default rates remain artificially low

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A spate of corporate bankruptcies is expected in Ireland later this year and into 2023 as government support that has been supporting businesses is withdrawn, according to a report by accounting and advisory group PwC released this morning.

The report says current bankruptcy rates are being artificially kept at levels not seen since the peak of the Celtic Tiger years in 2005-2006.

“The current rate of business failure remains at an artificial record low,” said Ken Tyrrell, Business Recovery Partner at PwC Ireland.

“Our analysis shows that business defaults in Ireland have increased over the past 12 months, although they are currently at record lows.

“We expect a wave of restructuring to hit Ireland with an increased number of insolvencies in the later part of this year and into 2023.”

PwC’s quarterly update says low corporate default rates are “largely” due to government support during pandemics, as well as creditor forbearance.

But there are already cracks in the armor, as corporate default rates rose 19 percent in the first quarter of 2022 compared to the first three months of 2021.

PwC said that “may indicate an increased level of restructuring”.

In a previous report published by PwC Ireland in February, the company estimated that more than 4,500 businesses here have been saved from collapse because they were being shored up and given life support by Covid-19 supports.

“Most business owners are well aware that given the war in Ukraine, the current economic environment is highly volatile and companies are facing severe headwinds in the form of geopolitical uncertainties, higher energy costs and price inflation, and ongoing supply chain issues putting upward pressure on interest rates,” he said Mr Tyrrell.

The default rate among Irish businesses for the 12 months ended the first quarter of this year was 15 per 10,000. This corresponds to the rates of 2005 and 2006.

“These numbers remain well below the past 17-year average of 52 per 10,000 companies, with a peak of 109 per 10,000 in 2012,” the advisory group noted.

Its update released today said that the arts, entertainment and recreation sector continues to have the highest business failure rate at 81 per 10,000 businesses in the 12 months to the end of the first quarter of this year.

In the first three months of 2022, the real estate sector saw the largest increase in defaults, rising from six per 10,000 to 20 per 10,000.

PwC said hospitality and retail are performing “better than expected” but will face challenges starting this month.

In both hospitality and retail, the failure rate is three per 10,000 businesses.

“These are labour-intensive sectors and will face challenges when the Employment Wage Subsidy Scheme (EWSS) expires in April,” PwC warned.

Mr Tyrrell said: “We expect in 2022 and 2023 to start using the administrative bailout procedure and audit body for small businesses as the Government provides support from Covid, such as

https://www.independent.ie/business/irish/wave-of-insolvencies-on-the-way-as-state-supports-fall-away-and-business-failure-rate-stays-artificially-low-41517444.html Wave of bankruptcies “on its way” as government support is removed and corporate default rates remain artificially low

Fry Electronics Team

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