The future survival of SMEs

The ongoing COVID-19 pandemic, in addition to what appears to be an ever-increasing likelihood of a hard Brexit on the horizon, has created a lot of uncertainty in our economy, and while government supports have been greatly welcomed, they cannot continue indefinitely. We are seeing significant signs of market stress across multiple sectors, with retail, hospitality and leisure being the most affected areas at this time. While, unfortunately, there will be a natural increase in business failure and insolvencies in Ireland over the next 12–24 months, there are a number of alternative options and supports available to businesses when considering their future survival.

Act early to maximise options
In order to ensure a business has the best chance of surviving such volatile times, it is key for management to act early and assess all available options and supports to them.

Right now one of the biggest challenges facing businesses is the lack of liquidity and working capital available, in addition to significant reopening and operational costs and the ongoing how or when a business will reopen or ever return to profitability.

While government packages have provided much-needed support in the areas of employee costs, statutory property costs, warehousing of tax liabilities and a moratorium on certain bank repayments, what might lie ahead for businesses after such supports extinguish remains uncertain.

Formal restructuring processes explained
Ireland has a very robust set of restructuring tools, such as Part 9 Schemes of Arrangement and Examinership, both providing a flexible and often successful outcome for many Irish businesses through our courts system.

Changes to Company law (as of August 2020), will now allow companies a longer period of time in Examinership (from 100 to 150 days) to present a viable scheme of arrangement for their survival. While the changes are only temporary in nature, this is a welcome move to provide companies with an extended moratorium from its creditors, while seeking a restructure and refinance of the underlying business.

Options available to businesses
When working with clients in analysing the availability of formal restructuring processes, we strongly recommend that prior to a company seeking a formal restructure of its business through the courts, other options such as debt restructuring, sale of non-core assets/subsidiaries, equity raise and contingency planning be considered to allow the business owner to take the most appropriate steps for its survival.

While many businesses will access some form of restructuring process, unfortunately, there will be businesses that will not have a reasonable prospect of survival, and in such circumstances, company directors must be aware of their duties if a company is deemed to have traded while insolvent.

By actively engaging with specialised restructuring experts, supplemented by wider financial advisory teams, management and business owners will put themselves on the best footing to ensure their future survival.

This article first appeared on charteredaccounts.ie Ireland on the 14th of August 2020.