Soaring costs behind sharp increase in Irish businesses closing in 2023

Rising costs will send about 650 companies to the wall this year, accountants predict. Inflation, uncertainty and market disruption continue to challenge many Irish businesses, according to a report published on Monday.

It shows that the number of companies that failed rose by one third to 468 in the nine months to the end of September this year, from 352 over the same period in 2022.

Accountants point out that the final three months of the year are generally the busiest for insolvencies.

Consequently, they estimate that a total of 650 companies will go to the wall this year, compared to 539 for 2022.

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The PwC Insolvency Barometer, published on Monday, shows that 25 out of every 10,000 companies in the Republic are failing.

This is 79 per cent higher than the lowest insolvency rate recorded, in 2021, when many businesses continued to draw Covid cash aid from the State, but remains lower than pre-pandemic levels.

The report states that the insolvency rate in 2019, the last year before the pandemic’s outbreak, was 36 out of 10,000.

This means that business failures remain at historically low levels, the accountants say.

The latest Central Statistics Office figures show that annual inflation rose to 6.3 per cent in August from 5.8 per cent in July as high energy borrowing costs continued to bite.

Prices rose 0.7 per cent in August alone, Government statisticians noted.

The annual rate was lower than the runaway 9.2 per cent high hit a year ago, while recent reports from Europe and the US have sparked hopes that cost pressures are easing.

Monday’s report shows that 145 companies failed in the three months to the end of September, on a par with the 143 that close their doors during the same period last year.

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The number of insolvencies in the third quarter of this lagged the 172 business failures recorded in the three months to the end of June by 16 per cent, the accountants say.

The monthly rate of failure slowed during July and August, but the report states that insolvencies generally slow in summer.

Shops have been most vulnerable to closure so far this year, with 116 retailers failing in the nine months to the end of September.

Only 40 businesses have used the Small Company Administration Rescue Process since the Oireachtas passed the law two years ago.

The scheme is a streamlined process meant to eliminate the cost and red tape associated with existing procedures such as examinership and receivership.

Lawmakers introduced the process as they expected large numbers of smaller businesses to get into trouble as Government withdrew Covid aid through 2021.

While few have availed of the system, PwC predicts that the number could surge as businesses enter talks with the Revenue Commissioners on the piles of tax debts that mounted through the pandemic.

About 6,000 companies have “warehoused” an average of €300,000 each and must repay this before May 2024.

Accountants believe that this will increase insolvencies next year, says Ken Tyrrell, PwC business recovery partner.

“In an environment where inflation remains high and the cost of doing business is not abating, insolvency levels are on the rise, though compared to pre-pandemic levels, are still relatively low,” he observes.

“Reaching about 650 by the end of the year, we do expect levels to continue to rise into 2024,” he adds.