Ireland must sort out a group of zombie businesses that survived on government support during the pandemic, law firm McCann Fitzgerald has said. And other “viable but bankrupt” companies that have racked up debt through forbearance must act now to protect their operations.
David O’Dea, restructuring and insolvency partner at law firm Big Five McCann Fitzgerald, said insolvency cases in Ireland will return to normal levels after two years when the number of business bankruptcies returns to the era of the easy credit Celtic tiger.
“Businesses have been living in suspended animation for the past two years, if I’m being honest,” Mr O’Dea said. “But now the support agreements are being withdrawn and creditors are reviewing the situation where trade is returning to pre-pandemic levels. Forbearance agreements with banks, landlords, creditors and the taxman must expire at some point: the money must be repaid. »
The issue of zombie companies is quite simple, he said. They won’t survive and just need to be liquidated.
“It’s artificial: it doesn’t make sense at the moment. I think we will return to 2018/19 insolvency levels, but there will be an onslaught.
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“I could not quantify but it would be necessary to suspect it, of the 4,500 companies saved [by Covid supports], there’s a good chunk of those that fall into the first bucket – zombie businesses. And among the remaining batch, there will be some who will fail. But there are viable businesses out there that can be saved.
“There are so many companies with a broken balance sheet. It needs to be fixed because it takes a healthy balance sheet to take on new debt, grow, expand and avoid the zone of insolvency.
He acknowledged that soaring inflation and energy costs are putting enormous pressure on Irish businesses just as they get back on their feet and try to organize the repayment of debt accumulated during the pandemic. of Covid.
The problem is particularly acute for companies in the sectors most affected by Covid – tourism and hospitality, aviation, live events and retail. But he also sees trouble looming for manufacturers, many of whom will have weathered Covid comfortably.
Supply chain issues have been exacerbated by the current zero-Covid strategy in Asia from which, he says, we are still importing a significant amount of material.
He urges businesses not to shy away from formal restructuring agreements such as examiner status which he says gives any viable business “a breath of fresh air”.
“You can get into debt, you can terminate contracts, and you can start over on day one if you get the investment you need through the process.”
For the industry, he says, international cross-border work has filled the void left by the lack of national restructuring. Ireland, he says, has become a jurisdiction of choice for cross-border work since Brexit, citing the restructuring of Norwegian Air – in which McCann Fitzgerald was involved – as well as pharmaceutical company Mallinckrodt and US oil and gas services group Weatherford gas companies.