According to insolvency practitioners, PJ Lynch and Declan de Lacy, Irish businesses should expect a tumultuous few months. The fall-out of the Covid-19 pandemic means that even as businesses have started to open up again, we might witness a record-breaking number of insolvencies between the second quarter of the year and 2021.
The prediction came hot on the heels of the Central Bank’s Quarterly Economic Bulletin release, which highlights the impact of Covid-19 on the Irish economy and the predictions for the next few years. Mark Cassidy, who is the Director of Economics and Statistics at the Central Bank, remarked that the report pointed to a “deep downturn in 2020” with a “gradual recovery” expected over the coming years. The pandemic is set to cost Ireland at least 9% of its GDP this year.
De Lacy remarked that in 2008, there were only 613 liquidations, and in 2009, one year into the last great recession, the numbers more than doubled to 1,245. 2019 had just 426 liquidations, and we can expect that to double too before the year ends.
2012 was the most brutal year for businesses in recent history, with corporate insolvencies reaching a crisis-era high of 1,684. The reason had been the fall of the global property market, which plunged Ireland into a recession, alongside most of the world. However, there has been a year-on-year recovery since then, with 2019 witnessing the lowest numbers in almost a decade.
The first half of the year witnessed 273 insolvencies, a 12% drop from last year’s numbers. However, that downward trend is not expected to continue for much longer. Experts agree that the drop was due to the government salary support schemes and the freezing of certain fixed costs as the economy went into lockdown in early March. The concluding half of the year has been predicted to have a grim outlook for businesses.
Over 1000 insolvencies are expected in the next few months as businesses struggle to come to grips with the immediate post-covid realities. From large corporations to small enterprises, there are bound to be casualties all over.
So far, UK-based department store, Debenhams, has liquidated its Irish arm while the USIT student travel group and Mothercare Ireland have also announced plans for liquidation. Cashflow problems have been fingered as the likely reason why so many companies are going under. As companies start to run out of money due to the complexities of the post-covid trading environment, the owners are likely to make a decision to close up shop before the reserves are empty.
Issues with restarting businesses persist despite the Government’s €7.7 billion stimulus plan, which focused on easing a return to normal economic activities. The plan contains the Restart Grant Plus scheme, which offers between €4,000 and €25,000 to a wide range of businesses.
On the other hand, banks are also finalizing plans to offer small and medium enterprises loans at below-the-market rates. The loans are guaranteed by the Government by up to 80% and are backed by a €2 billion scheme. At the same time, banks are preparing themselves for a slew of bad debts that will arise as a result of defaults during the pandemic.
Although the Government’s stimulus plans are expected to help with the overall economic recovery, insolvencies are predicted to spike from the second quarter of 2020 up until 2021. By 2022, barring any economic surprises, the numbers should start normalizing again.
That is why it is so important, especially for small and medium businesses, to take full advantage not only of the recent Government plans designed to help the economy during the pandemic, but from other available initiatives such as grants, R&D Tax Credits, and other types of support available to creative and innovative businesses.