Southern insolvency figures may hint at North’s future

Since the beginning of the recovery from the Covid-19 pandemic, there have existed two different insolvency regimes on the island of Ireland.

In 2024, there were 852 total insolvencies in the Republic, a 16% increase on 2023.

Some 305 companies in Northern Ireland declared insolvency in 2024, an almost 40% increase.

Of course, a portion of the explanation will always rest on the sizes of the respective jurisdictions, but Northern Ireland’s much stricter post-Covid insolvency procedures can also help us understand this discrepancy.

Insolvencies can be said to have risen dramatically in both jurisdictions in 2024, but they could also be said to be simply returning to pre-Covid figures.

Despite the Republic’s increase, their insolvency rate per 10,000 companies remains below the 20-year average, while Northern Ireland’s total is slowly working its way back towards pre-Covid totals, such as 2019’s figure of 347.

In the Republic, we have seen a quicker return to pre-Covid arrangements for insolvency. Hospitality is a sector that has been especially struck.

While Revenue have been generally co-operative with measures such as debt warehousing, the return to a VAT of 13% has been a wedge issue for the sector, who have campaigned successfully for the Covid era 9% rate to be made permanent.

Years after the rate returned to 13%, this remained a key issue in the recent general election, with Fine Gael pledging to support an 11% rate and Sinn Féin pledging a return to 9%; the new government has announced its intention to return to 9% for food-based hospitality.

Such mass insolvencies have been mostly avoided in Northern Ireland due to the differing court restrictions in both jurisdictions.

As it stands, HMRC is the only organisation that can bring forward insolvency proceedings without a court order.

While there exists a statue on the books of the courts that would lift such restrictions, the courts have thus far shown no intention to do so.

What this has meant is that Northern Ireland has avoided a breaking of the dam, a glut of compulsory liquidations all at once.

However, some estimates state that 98% of insolvencies in the Republic were SMEs, with hospitality the worst sector affected.

Northern Ireland’s economy is even more SME-reliant than that of the Republic and the hospitality sector here is dealing with similar, but worse, financial pressures, such as a 20% VAT rate and a lack of the rates relief seen in England and Wales.

Covid-era restrictions cannot last forever, but as we move further away from the pandemic, the Republic may give us a hint towards what lies in store for the Northern market.

Changes to employer National Insurance contributions and increases in wage rates coming into effect in April mean that the first quarter of 2025 will be crucial. Without further restriction or intervention, this is not a positive vision of the future.

Matthew Howse is partner, Dispute Resolution and Litigation, at Eversheds Sutherland