Business

No evidence of looming ‘tsunami’ in business failures, department says

Some 62 companies have entered the Small Companies Administrative Rescue Process, or Scarp, since 2021

Scarp facilitates simplified out-of-court debt restructuring for companies deemed viable. Photograph: iStock

Ian Curran
Wed May 8 2024 - 13:36

There has been no sign of a “tsunami” in corporate insolvencies many expected as pandemic-era business supports were in unwound in recent years, Department of Enterprise, Trade and Employment officials have said.

Civil servants also said on Wednesday the department does not collect information about what specific viability challenges are driving businesses into arrangements such as the Small Company Administrative Rescue Process (Scarp).

Officials from the department and Revenue Commissioners appeared before the Oireachtas Enterprise Committee to discuss the process, which was rolled out in 2021. Aimed at small and micro businesses, Scarp aims to facilitate simplified out-of-court debt restructuring for companies deemed to be viable, acting as an alternative to the more expensive examinership process.

Fiona O’Dea, principal officer in the commerce, consumer and competition section of the Department of Enterprise, told TDs and senators that 62 small companies had availed of Scarp as of April 26th. This has resulted in “a significant number of jobs being saved,” Ms O’Dea said. Of the total, just 10 companies have failed to survive the process, the committee heard.

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“The context is also important,” she said. “Insolvency and restructuring activities are, as a whole, rising but do remain below pre-pandemic levels. In tandem with this upward trend, 2023 saw a 50 per cent rise in Scarp notifications over the first year of operation.”

The insolvency rate was kept artificially low during the Covid-19 pandemic due to the roll-out of generous business supports and other arrangements such as the debt warehousing scheme. While business failure rates have begun to tick up again, Ms O’Dea said there was little evidence to suggest a “tsunami” of insolvencies was in the offing.

“The Central Bank’s financial stability review of 2023 did not raise alarm bells regarding insolvency spikes or SME impacts,” she said. “That review does note that corporate insolvency has continued to rise from historic lows, but that this trend appears to relate primarily to firms that exit the pandemic in weak financial condition. They also report that most companies entering insolvent liquidation in 2023 claimed wage subsidies during the pandemic.”

However, officials said the department does not keep detailed information on the reasons why companies apply for protection under Scarp. Business lobby groups including Ibec have recently claimed the cost of various labour market interventions by the Government, including the commitment to introducing a national living wage by January, 2026, will result in further business failures and job losses.

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Asked by Sinn Féin spokesperson on enterprise, trade and employment Louise O’Reilly whether the department had received similar feedback from businesses entering Scarp, officials said the department does not collect such information from the insolvency practitioners assigned to businesses to work out a rescue programme.

“It’s difficult for us to collect the data because some of that is commercially sensitive,” one civil servant said. “When you engage with the companies, they don’t necessarily want to wave the flag and say, ‘This was our particular weakness or vulnerability. This is the reason we’ve had to enter a rescue process.’”

Independent TD Matt Shanahan said there was a perception the department “doesn’t understand enough about what is actually going on in small and micro businesses” and therefore it should be collecting this information.

Ian Curran

Ian Curran

Ian Curran is a Business reporter with The Irish Times

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