Almost 60pc increase in liquidation of SMEs in last three months

Business failure figures emerge as new state loan scheme is launched to help companies stay afloat

Retail, hospitality and construction firms have so far dodged the post-Covid uptick in insolvencies. Photo: Bloomberg

Sarah Collins

Small firms can access state-backed loans of up to €1.5m from today, as figures show business failures in the sector beginning to skyrocket.

Liquidations of small and medium-sized companies are up 58pc in the last three months compared to the first quarter of the year, a survey by consultants PricewaterhouseCoopers (PwC) shows.

Overall company failures were up 14pc quarter-on-quarter, PwC said in its latest restructuring update, and up 18pc in the first half of this year, compared to the same period in 2021.

Many firms were on state supports throughout 2020 and 2021, with the wage subsidy scheme expiring only in April. Company failures were at a record low last year as a result.

In the UK, where supports ended last autumn, the liquidation rate is nearly four times higher than here, PwC said.

Insolvencies in Ireland were highest in the health and energy sectors, when comparing the first two quarters of this year.

The failure rate for hospitality firms also increased, quarter on quarter, but remained at a “relatively low” level, PwC said.

There was a drop in businesses going bust in the travel and transport, arts, entertainment and recreation, and real-estate sectors, when comparing quarter on quarter.

But firm failures are at historic lows.

In total, 4.2 out of 10,000 businesses went bust in the second quarter, compared to a 17-year average of 39.

PwC says this rate is likely to rise in the second half of the year and next year, particularly as tax debt – almost €3bn of which is still ‘parked’ in a state warehousing scheme – has to be paid back from January.

“The business failure rate continues at a record low, but there are clouds on the horizon,” said Ken Tyrrell, a business recovery partner at PwC Ireland. “We are now seeing business failure levels slowly but steadily increasing, albeit still from a very low base.

“It remains to be seen for how long those organisations under financial pressure in Ireland can stay in business.”

Figures from consulting firm Deloitte last week showed insolvencies rose by 50pc to 253 in the first six months of 2022, compared with the first half of last year, a fifth below pre-pandemic levels.

It found that retail, hospitality and construction firms have so far dodged the post-Covid uptick in insolvencies, thanks to a continued boom in demand, while financial and real-estate firms are feeling the heat.

The news comes as the Government launches a new low-cost loan scheme for SMEs.

It replaces the Covid-19 credit guarantee scheme, which was closed at the end of June, when the EU’s relaxed state aid rules expired.

It had provided more than 10,000 small firms in Ireland with €730.2m in financing.

“This successor scheme will give SMEs, including farmers, fishers and food businesses, the option to access really competitively priced loans, should they need to avail of that option, in addition to the other help that is available,” said Tánaiste Leo Varadkar.

Companies can avail of one- to six-year loans of between €25,000 and €1.5m via the scheme, which is run by the Strategic Banking Corporation of Ireland (SBCI) and is backed by the European Investment Bank.