• Current students
      • Student centre
        Enrol on a course/exam
        My enrolments
        Exam results
        Mock exams
      • Course information
        Students FAQs
        Student induction
        Course enrolment information
        Key dates
        Book distribution
        Timetables
        FAE Elective Information
      • Exams
        Exam Info: CAP1
        E-assessment information
        Exam info: CAP2
        Exam info: FAE
        Reasonable accommodation and extenuating circumstances
        Timetables for exams & interim assessments
        Interim assessments past papers & E-Assessment mock solutions
        Main examination past papers
        Information and appeals scheme
        JIEB: NI Insolvency Qualification
      • CA Diary resources
        Mentors: Getting started on the CA Diary
        CA Diary for Flexible Route FAQs
      • Admission to membership
        Joining as a reciprocal member
        Conferring dates
        Admissions FAQs
      • Support & services
        Recruitment to and transferring of training contracts
        CASSI
        Student supports and wellbeing
        Learning Hub data privacy policy
        Online Payment FAQs
        Audit qualification
    • Students

      View all the services available for students of the Institute

      Read More
  • Becoming a student
      • About Chartered Accountancy
        The Chartered difference
        What do Chartered Accountants do?
        5 Reasons to become a Chartered Accountant
        Student benefits
        School Bootcamp
        Third Level Hub
        Study in Northern Ireland
        Events
        Blogs
        Member testimonials 2021
        Become a Chartered Accountant podcast series
      • Entry routes
        College
        Working
        Accounting Technicians
        School leavers
        Member of another body
        International student
        Flexible Route
        Training Contract
      • Course description
        CAP1
        CAP2
        FAE
        Our education offering
      • Apply
        How to apply
        Exemptions guide
        Fees & payment options
        External students
      • Training vacancies
        Training vacancies search
        Training firms list
        Large training firms
        Milkround
        Training firms update details
        Recruitment to and transferring of training contract
        Interview preparation and advice
        The rewards on qualification
        Tailoring your CV for each application
        Securing a trainee Chartered Accountant role
      • Support & services
        Becoming a student FAQs
        Who to contact for employers
        Register for a school visit
    • Becoming a
      student

      Study with us

      Read More
  • Members
      • Members Hub
        My account
        Member subscriptions
        Annual returns
        Application forms
        CPD/events
        Member services A-Z
        District societies
        Professional Standards
        Young Professionals
        Careers development
      • Members in practice
        Going into practice
        Managing your practice FAQs
        Practice compliance FAQs
        Toolkits and resources
        Audit FAQs
        Other client services
        Practice Consulting services
        What's new
      • Overseas members
        Working abroad
        Working in Australia
        Overseas members news
        Tax for returning Irish members
      • In business
        Networking and special interest groups
        Articles
      • Public sector
        Public sector news
        Public sector presentations
      • Support & services
        Letters of good standing form
        Member FAQs
        AML confidential disclosure form
        CHARIOT/Institute Technical content
        TaxSource Total
        Audit Qualification requirements
        Pocket diaries
        Thrive Hub
    • Members

      View member services

      Read More
  • Employers
      • Training organisations
        Authorise to train
        Training in business
        Manage my students
        Incentive Scheme
        Recruitment to and transferring of training contracts
        Securing and retaining the best talent
        Tips on writing a job specification
      • Training
        In-house training
        Training tickets
      • Recruitment services
        Hire a qualified Chartered Accountant
        Hire a trainee student
      • Non executive directors recruitment service
      • Support & services
        Hire members: log a job vacancy
        Firm/employers FAQs
        Training ticket FAQs
        Authorisations
        Hire a room
        Who to contact for employers
    • Employers

      Services to support your business

      Read More
☰
  • The Institute
☰
  • Home
  • Articles
  • Students
  • Advertise
  • Subscribe
  • Archive
  • Podcasts
  • Contact us
Search
View Cart 0 Item
  • Home/
  • Accountancy Ireland/
  • Articles/
  • News/
  • Latest News

Lastest news

Is insolvency on the horizon for SMEs in H2?

Jun 25, 2021

Insolvencies are low right now, but that doesn’t mean businesses are safe. Declan de Lacy explains why the number of insolvencies could rise in the future.

Is the current low rate of insolvencies like the sea retreating before a tsunami? This is the worst-case scenario envisaged by the European Systemic Risk Board in its recent paper on preventing and managing many corporate insolvencies.

Ordinarily, soaring unemployment rates and collapsing economic output are accompanied by rapidly increasing liquidations. The absence of this since March 2020 suggests that the Irish Government’s business supports have been effective.

However, recent reports by the Central Bank and the Central Statistics Office suggest low numbers of liquidations are not a sign of robust corporate health but, instead, reflect the delayed transmission of the economic shock through to insolvency rates.

The Central Bank reports that 26% of SMEs have made losses since the pandemic began and that 16% are in financial distress. More worrying is data from the CSO indicating that more than 16,000 businesses (7% of those surveyed) had their entire staff laid off since April 2020. Although restrictions directly prevented some businesses from resuming trade, it is likely that among those 16,000 businesses, economic viability prevented re-opening of some. As time passes, it becomes increasingly unlikely that this latter group will ever resume trading.

The recent decision to extend government schemes including the Employment Wage Subsidy Scheme, COVID Restrictions Support Scheme, and tax warehousing until the end of the year gives businesses affected by the pandemic additional time to assess their position and take remedial steps before supports taper off. It will be essential for businesses to revert to a viable business model based on sustainable costs and revenues during this period.

When the economy fully re-opens, many businesses will be viable on a day-to-day basis. However, they will have insufficient profit or liquidity to make good on debts incurred before or during the COVID-19 crisis. These debts are likely to include rent arrears and taxes warehoused during the pandemic. As creditors revert to more normal collection models, the survival of these businesses will depend on their ability to either restructure or reschedule their obligations. Historically, there has not been a viable process for SMEs to restructure their debts. However, the Small Companies Administrative Rescue Process, which will be introduced before the summer ends, is expected to provide a fast and fair rescue process for distressed SMEs. It is incumbent on accountants to familiarise themselves with this process and recommend it to clients for whom it is necessary.

In the last recession, many companies had to be liquidated because they had incurred large debts to finance credit to customers who ultimately did not pay. To avoid this happening again, businesses that advance credit must manage their exposure to customers whose viability is uncertain.

It is inevitable that as supports taper off and debt collection becomes more muscular, many companies will be unable to continue trading. The true number of companies fatally impacted by the pandemic will not be revealed until this happens.

Declan de Lacy FCA is an insolvency practitioner and leads the advisory and restructuring practice in PKF O’Connor, Leddy & Holmes Limited.

The latest news to your inbox

Useful links

  • Current students
  • Becoming a student
  • Knowledge centre
  • Shop
  • District societies

Get in touch

Dublin HQ

Chartered Accountants
House, 47-49 Pearse St,
Dublin 2, Ireland

TEL: +353 1 637 7200
Belfast HQ

The Linenhall
32-38 Linenhall Street, Belfast
Antrim BT2 8BG, United Kingdom.

TEL: +44 28 9043 5840

Connect with us

CAW Footer Logo-min
GAA Footer Logo-min
CARB Footer Logo-min
CCAB-I Footer Logo-min

© Copyright Chartered Accountants Ireland 2020. All Rights Reserved.

☰
  • Terms & conditions
  • Privacy statement
  • Event privacy notice
LOADING...

Please wait while the page loads.