Wave of examinerships due as companies come off life support
COMPANY debt adviser firm Baker Tilly is expecting a wave of examinerships in 2021 as Government supports for Covid-19 are phased out and the full impact of Brexit is felt in the economy.
Baker Tilly’s annual Examinership Index recorded a sharp drop in companies seeking restructuring in the second half of 2020 despite the economic shock of the pandemic.
Just nine businesses successfully exited examinership last year, including aircraft lessor Cityjet, compared to 19 in 2019 – a year of economic growth when insolvencies should be less common.
The scarcity of companies seeking to restructure indicates many businesses are surviving the pandemic on life support, according to Baker Tilly managing partner Neil Hughes.
“Today’s Index points towards the fact that the economic impact of Covid-19 has not yet been fully realised,” he said. “Companies are being kept on life support with the help of the Irish Government, the warehousing of Revenue debt and the forbearance of creditors. Many businesses will need to restructure to enable them to operate and succeed into the future.”
Mr Hughes said the number of businesses inquiring about examinership or restructuring peaked in the second quarter of 2020 at the highest level in three decades. However, few companies were forced into the process as State subsidies, bank forbearance and rent abatements kept them afloat.
Baker Tilly is now expecting those firms to run into trouble in the second half of 2021 as the pandemic recedes and, with it, the extraordinary levels of external liquidity support. Mr Hughes expected a year similar to 2012, when 5,000 jobs were saved through restructuring.
“It’s not about surviving the recession of 2020, it’s about surviving the recovery of 2021,” Mr Hughes said. “Every creditor is going to be putting their hand out.”
Just 2pc of Irish companies that become insolvent go into examinership, according to Baker Tilly, compared to one-quarter of insolvent American firms that seek Chapter 11 protection.
“Are 98pc of those companies doomed? I refuse to accept that,” said Mr Hughes. “It’s unnecessary economic destruction.”