Government Covid-19 supports could be concealing many businesses’ financial woes, one expert warned on Thursday, as figures showed company insolvencies fell in the first three months of the year.
Statistics published by accountants Deloitte show that 111 companies went through various insolvency procedures in the first quarter of this year, 30 per cent less than during the same period in 2020.
The firm suggested that the decline from the 159 company insolvencies recorded during the first quarter of last year was due to ongoing Government Covid-19 supports.
David Van Dessel, partner, financial advisory at Deloitte, said the pandemic crisis created a significant challenge for otherwise viable Irish companies.
He added that Government supports were likely to be concealing the true level of distress, particularly in hard-hit sectors such as hospitality and retail.
The first three months of 2020 was the last period of normal trade before pandemic restrictions closed many businesses.
Since then the State has given companies wage subsidies, regular payments to those forced to close by pandemic restrictions, warehoused tax liabilities and temporarily waived commercial rates, to aid business through the crisis.
Mr Van Dessel pointed out that rent and tax liabilities could have continued to mount over the last year, while many businesses have been closed, forced to operate sporadically or had their operations limited.
“Rent is going to be a problem and there is probably going to be a tax problem to deal with also,” he said.
He explained that the extent of tax issues could depend on how compliant a business was up to the point that the Government began imposing lock downs in March last year.
However, Mr Van Dessel noted that companies’ ability to keep up to date with their tax liabilities depended on the time of year and trading conditions.
“In relation to landlords, you would hope that they would be willing to look at payment plans for arrears, but that may not always be the case,” he said.
Mr Van Dessel predicted that companies and creditors will have to deal with situations where the business is trading profitably, but may not be able to repay its Covid crisis liabilities.
In those cases, they will have to consider paying off those debts over time, but not all creditors may go along with this, he warned.
“A bank might be able to take a payment plan over time, but a trading creditor may not be able to accept the same payment plan,” he said.
Deloitte’s figures show that liquidations where creditors vote to wind up a company, accounted for 78 of the insolvencies recorded in the first quarter of this year.
There were 134 such creditors’ voluntary liquidations - as this process is known - during the same period in 2020.
There were 23 receiverships, that is, where creditors take control of a business or its assets, on foot of a secured debt.
In eight cases, creditors petitioned the High Cour to wind up companies. Just two companies had examiners appointed to oversee a possible rescue of those businesses.
Following proposals from Government last year, the Company Law Review Group is working on a fast-track rescue system for small- and medium-sized businesses. This will cut out the need for court appearances, making it cheaper than examinership.
If the Oireachtas passes it, the new law will be a permanent part of the Republic's insolvency regime, but it could be heavily used by small businesses that emerge from the Covid crisis with larger than normal debts.