Up to 10,000 Irish businesses remain in state of financial distress post pandemic, Central Bank finds

Up to 10,000 Irish businesses remain in a state of financial distress as a result of the pandemic and about half of these are without “a viable trading future”, a new study from the Central Bank has indicated.

Separate research, also published by the regulator, indicated that up to 30 per cent of businesses here availed of the Government’s wage support scheme at the height of the pandemic.

The Central Bank on Tuesday published two financial stability notes, looking at various aspects of the pandemic.

The first examined policy options for Government to address insolvencies and restructures, which it said are likely to increase as pandemic supports are wound down and liabilities (such as deferred tax payments) increasingly fall due.

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The study estimated that around 4 per cent of Irish businesses, equating to around 10,000 entities, remained financially distressed into 2022 after the health restrictions were lifted. “This does not consider additional distress that may emerge due to inflationary pressures,” it said.

The study suggested about 2 per cent of businesses are likely to be “financially distressed and without a viable trading future as a result of the pandemic”, while another 2 per cent are in financial distress but may have a viable trading future under the economic recovery expected.

It also suggested that any policy measures deployed by Government to assist struggling businesses must be “targeted, scalable, and equitable” in order to meet potentially large volumes of distress, should that materialise.

“Measures must be targeted so that firms with viable economic futures can be channelled towards restructuring rather than liquidation, and any initiatives put in place must be capable of dealing with potentially large numbers of firms without the need for lengthy consideration or primary legislation,” it said.

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“Measures must also be equitable, in that it must not leave firms that have been meeting their liabilities throughout the pandemic at a relative disadvantage (for example, the forgiveness of deferred tax liabilities may leave those firms that paid taxes on time at a disadvantage),” it said.

Separate research, examining the take-up of the Government’s wage support scheme, found that at the peak of the pandemic, some 30 per cent of active companies in Ireland claimed Covid-19 wage subsidies. This declined to 10 per cent in first quarter of this year.

The claimants fell into three main categories: those that claimed in 2020, but never again (36 per cent); those that claimed in 2020, before gradually transitioning off the payment in 2021 (34 per cent); and those that remained on the subsidy throughout the pandemic (24 per cent).

The study noted that “persistent claimants” were more likely to be vulnerable coming into the pandemic, with higher levels of pre-pandemic leverage and lower liquidity.

“This suggests that these companies were more vulnerable to financial shocks even before the pandemic,” the report said.

The Employment Wage Subsidy Scheme (EWSS), one of the central pillars of the Government’s response to the Covid-19 pandemic, ended in May.

The EWSS and its predecessor, the Temporary Wage Subsidy Scheme (TWSS), gave out €10.66 billion during the course of the pandemic. Approximately 20,000 businesses were still in receipt of the wage subsidy in late April this year.

The Central Bank’s study found that businesses in the accommodation and food and other services sectors had the highest share of persistent claimants.

Overall, 60 per cent of accommodation and food businesses claimed the subsidy at some point between 2020 and the first quarter of this year. About a third of companies in these sectors were still claiming the subsidy in the first quarter of this year.

The report also looked at the exposure of retail bank and nonbank lenders to claimants, finding 24 per cent of Irish non-financial corporate balances at retail banks were owed by companies claiming the wage subsidy in mid-2020.