Irish restaurant sector on the brink as closures begin to bite

Hospitality industry voices are calling for more government supports to stem rising business closures and insolvencies that they say are beginning to sweep through the sector.

Soaring energy prices, demand letters from the Revenue Commissioners and diminished footfall in urban and town centres are pushing restaurants and cafes to the brink. Still, insolvency experts say the issues are not unique to the sector and business owners need to act now if they are to save their companies.

Across the country, a raft of restaurants and cafes have called time in recent months.

Last week, Michelin-listed restaurant Circa in Terenure, shut down after nearly four years in business. In a post on Instagram, its owners cited “seemingly constant price increases” and staffing issues as the main reason behind the decision.

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[ Michelin-listed restaurant Circa shuts in Terenure after four years ]

Separately, having already closed one of its branches in Rathmines, the Vegan Sandwich Company announced last week that it would shut its remaining two outlets in Dublin after being forced to call in the liquidator. “It’s just not possible for us to keep going any longer,” owner Sam Pearson wrote on Twitter.

In August, restaurateur JP McMahon decided to close his popular Galway restaurant Tartare.

What can be done to ease the pressure on the restaurant industry?

Listen | 33:55

All over the country, restaurants are being forced to close their doors, unable to function in the current economic climate. Fears are growing that closures within the industry could reach one per day, levels last seen during the recession in 2012. With energy costs continuing to rise and Covid-era supports due to end early next year, the worst may be yet to come. In today’s episode, chef and restaurateur Jp McMahon tells Ciaran Hancock about his decision to close his Galway-based restaurant Tartare in August this year. We also hear from Adrian Cummins, chief executive of the Restaurants Association of Ireland, who believes the government could be doing a lot more to ease the pressure on the industry.

Other high-profile restaurant owners, including celebrity chef Dylan McGrath, have opted to restructure their debts and their businesses through the Small Companies Administrative Rescue Process (Scarp), rolled out last year as a cost-effective alternative to the examinership process for small businesses. Yet just 11 companies have so far engaged with the process, which allows them to work out payment arrangements with creditors including the taxman.

Revenue challenge

Co Clare-based businessman Mike Treacy, who co-owns the popular Bakehouse 22 cafe, bakery and shop near King John’s Castle in Limerick city with his wife, Sheelagh, said last week he was putting the business up for sale after more than 70 years in the family.

“The numbers haven’t got back to where we were,” he told The Irish Times. “A lot of people are still working at home. People are not back into the office fully. Yes, the numbers are coming back but they’re not at pre-Covid levels as of yet.”

It was looking ahead to the next few months that ultimately forced Treacy’s hand with many of the biggest challenges for the business yet to come. “I can see Revenue getting heavy-handed now that they see that Covid is over. They’re saying: ‘We want our money back and we want it now.’”

Speaking to RTÉ Radio on Tuesday, Restaurants Association of Ireland chief executive Adrian Cummins claimed about one restaurant is closing per day, the most acute situation since 2012.

“It’s a combination of factors,” he told The Irish Times, chief among them is energy bills. “It’s off the charts,” he said.

[ Restaurants under pressure: ‘This energy crisis will push all our backs to the wall’ ]

The build-up of tax debts is another big factor, Cummins said. “Taxes due to the State like Vat that people have warehoused are coming due and the Revenue is starting to issue demand letters.”

But restructuring expert Declan de Lacy, a partner with insolvency practitioner PKF, said the corporate insolvency rate in Ireland, while ticking up, is still nowhere the peak of 2011 when 1,311 companies went to the wall. By the end of the third quarter of 2022, 281 businesses had liquidators appointed, either by court order or through a creditors’ voluntary liquidation, compared to 333 for all of 2021.

‘Logical reasons’

“So we’re, at the moment, below boom-time levels. And we’re not in a boom. So something is holding the numbers back.”

That something is the generous support the Government offered to businesses during the pandemic to keep them afloat. The figures show that, despite anecdotal evidence to the contrary, those supports continue to stave off the long-anticipated wave of closures that economists have predicted would follow the pandemic.

There are “logical reasons” to believe this wave won’t materialise in earnest until the first quarter of 2023. For one, the number of winding-up petitions going through the courts has collapsed since the outset of the pandemic, largely because, during Covid, “the amount that you had to be owed to petition [the court to wind up a business] went up from €10,000 to €50,000″, de Lacy said.

That has been extended over the past two years by ministerial order. But the latest deadline is due to expire on December 31st “and the expectation is that it will not be extended again”.

Meanwhile, the Government’s tax debt warehousing scheme expires in January.

For restaurants, cafes and SMEs of all varieties worried about their viability ahead of the deadline, de Lacy said, now would be a good time to engage with the Scarp process. This is because “if they have taxes in the warehouse for which they can’t agree a payment arrangement with Revenue before the end of the warehousing period, then they have a debt they can’t pay, meaning they have poor tax compliance.”

That would allow Revenue to “opt out” of the Scarp arrangement, he said, and pursue the company for their tax debts.

“Time is of the essence here,” he said.