The rise in insolvencies in Ireland has had a significant impact on builders, restaurants, and shops. In the first half of 2023, insolvencies saw a notable increase, with a 30% rise compared to the previous year. Within the first six months of this year, 329 firms have already gone bankrupt, and the number of insolvencies continues to grow.
The construction, hospitality, and retail sectors have been hit particularly hard by this surge. Construction insolvencies have more than doubled, while hospitality firms going bust have almost tripled. The escalating costs within these industries are a major contributing factor to this trend.
It is worth noting that despite the economic repercussions of Covid-19 and other factors, insolvencies are still only at 2019 levels. This suggests a return to pre-pandemic levels after a period of artificially low figures.
To address this issue, the Small Company Administrative Rescue Process (SCARP) has witnessed increased adoption. This process provides a more cost-effective and expeditious option for small companies to restructure and potentially avoid insolvency.
However, the impact of high inflation, soaring energy costs, and rising interest rates on insolvency levels remains uncertain. These factors could further exacerbate the already challenging situation for builders, restaurants, and shops.
Trends in Insolvencies
Insolvencies in Ireland have been on the rise, particularly in the construction, hospitality, and retail sectors. Notable increases have been observed in the first half of this year compared to the same period last year.
Construction insolvencies more than doubled in the first six months of this year. The number of hospitality firms going bust almost tripled during this period. Additionally, retail insolvencies increased by 53%.
The spiraling costs faced by these sectors have contributed to the rise in insolvencies. Despite the economic impact of Covid-19 and other factors, insolvency levels are still only at 2019 levels. This indicates that the economy is moving towards pre-Covid insolvency levels after a period of artificially low levels.
It is important for distressed firms, including smaller ones, to take early action when facing financial distress.
Industries Affected
The construction, hospitality, and retail sectors have experienced a notable increase in financial distress. Insolvencies in the construction industry more than doubled in the first half of this year compared to last year. This increase is attributed to spiraling costs and challenges in securing projects.
Similarly, the hospitality sector saw a significant rise, with the number of firms going bust almost tripling in the first half of this year.
The retail sector also faced challenges, with a 53% increase in insolvencies in the first half of the year compared to the same period last year. These industries have been particularly affected by the economic impact of Covid-19 and other factors such as high inflation and rising operating costs.
However, it is worth noting that the real estate sector has experienced fewer insolvencies this year compared to last year.
Comparison to Financial Crisis
Comparatively, the level of financial distress experienced in the current economic climate is significantly lower than that observed in the aftermath of the 2008 financial crisis. Despite the increase in insolvencies in Ireland, the overall numbers are still well below the levels seen during the financial crisis.
In the period of 2012-2018, insolvency levels were much higher, with an average annual level of over 1,000. It is important to note that the economy is now moving towards pre-Covid insolvency levels after a period of artificially low levels.
While negative economic factors such as high inflation, soaring energy costs, and rising interest rates are impacting the economy, their material fallout has not been fully seen in insolvency levels yet.
Therefore, while the rise in insolvencies in sectors such as construction, hospitality, and retail is concerning, it is not indicative of a crisis on the scale of the 2008 financial crisis.
