BY JOHN ELLIS, FINANCIAL ADVISOR
In a recent report by PricewaterhouseCoopers (PwC), Irish corporate insolvencies have increased by 16% in 2024, the highest level in six years. Though the final count of 852 insolvencies fell short of the anticipated 900, it reflected an unexpected strength in the Irish economy.
Retail and hospitality sectors bore the brunt of these insolvencies, contributing to over 40% of the total cases. Liquidated hospitality companies left behind €380,000 of liabilities on average while retail companies accounted for nearly 24% of all insolvencies, with 200 businesses affected.
Despite these figures, the overall economic backdrop remain robust, with gross national income (GNI) growing by almost 5% for the second consecutive year. Inflation eased leading the European Central Bank (ECB) to reduce borrowing costs. Still, some businesses failed to recover from the continuing impact of the pandemic and the surge in operating costs driven by global conflicts. The wind up of government pandemic-era tax deferral schemes further exacerbated financial pressures for many companies.
Liquidation was the main route constituting nearly 80% of all insolvencies. This trend highlights a substantial number of companies opting for closure over rescue processes. Notable liquidations included fashion retailer Alias Tom, (synonymous with fine tailored suits and high-end men’s fashion for decades) said it had been impacted by changing retail trends, in particular “the move toward less formal workwear”. The prepaid card company PFS Card Services was put into liquidation by an order of the High Court. (Remember that from July 2024, PCSIL-issued cards were placed into “spend only” mode and from January 2025 the cards will be frozen. Should you have a card you need to act immediately!
The lifespan of insolvent companies averaged 13 years, with the shortest lasting 10 months and the longest nearly 60 years. Receiverships represented less than 15% of insolvency cases, reflecting a continuing pattern of lender patience and restructuring efforts.
PwC’s report sheds light on the limited use of the Small Company Administrative Rescue Process (SCARP) and examinerships, which together accounted for less than 7% of all formal insolvencies. SCARP, designed for viable small and micro companies, saw a small decrease in usage from 33 cases in 2023 to 30 in 2024.
This underutilisation suggests underlying profitability issues in many insolvent companies, leading to liquidation rather than attempts at a turnaround strategy. “Approximately only one in every 20 insolvent companies are opting for a rescue process,” PwC noted, indicating a preference for winding up over restructuring.
Looking ahead, PwC cautions that the elevated cost of debt could cause further defaults as companies face refinancing challenges at higher rates. They anticipate that 2025 could witness additional business closures due to accumulated economic strains and management fatigue in several sectors.
Despite these figures, PwC underscores the resilience of Irish businesses, with many “actively transforming operations to future-proof their enterprises”. The emphasis on cash flow management and working capital remains critical, especially as businesses go through a 2025 first quarter quieter trading period.
As Irish businesses move into 2025, they must brace for an increasing minimum wage, fluctuating energy costs, and continued inflation.
Companies are encouraged to use restructuring processes like SCARP and working more efficiently. And Government and industry leaders must continue supporting enterprise through “flexible financial mechanisms and creating an environment that will drive sustainable growth allowing businesses to not only weather the storm but also emerge stronger and more competitive in the global market”.
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