February 19, 2024
Sodium Valproate (Epilim) Inquiry
In November 2020, the Minister for Health, Mr Stephen Donnelly, announced that an inquiry would take place into the historical licensing and use of the epilepsy drug Sodium Valproate (also...
As we continue to work within the confines of the third lockdown, we still look with tentative hope towards a brighter future.
The roll out of the vaccine is underway and we can see the light at the end of the tunnel. But the effects of the Covid-19 pandemic on how we work, and the economy overall, cannot be underestimated.
2020 insolvency figures conceal bleaker truth
Deloitte recently published figures which show an increase of only 1% from 568 corporate insolvencies to 575 corporate insolvencies in 2020. These figures are clearly not representative of the effect of the pandemic.
The minor increase in insolvencies has been made possible by;
While low borrowing costs may continue, government subsidies and creditor forbearance will not. At some point in the next 12 months, government subsidies will almost certainly end, or be phased out, as the pandemic ends and, businesses open again and start to trade in a more normal environment. The absence of such supports will reveal the true level of distress in many businesses, particularly in those sectors most affected by the pandemic like retail, tourism, hospitality and aviation.
Creditors will start to pursue the amounts due to them as they see an opportunity for repayment. It is difficult for a creditor to pursue a business which barely traded in the pandemic and which, in the case of the sectors mentioned above, pragmatism takes over and creditors realise that their best chance of recovery often lies in the business starting to trade again.
Using the courts to recover debts during the pandemic proved difficult as there were considerable delays with the courts not operating in a normal manner as well as restrictions in terms of avenues that creditors could take. When the pandemic ends, the courts will open again and become an option for creditors.
The economic damage will become apparent
In the next 12 months the extent of the damage will become apparent. Many businesses will have a debt burden incurred during the pandemic to trade creditors, banks and landlords in particular. For many in retail, entertainment and travel, the business that was there before the pandemic may simply cease to exist. Whether it is as a result of a debt burden or a business model ceasing to be effective, businesses and directors will look at what protection can be given to them by availing of some of the remedies under the 2014 Companies Act (the Act).
Options for businesses in distress
Where a company has maintained its underlying business but cannot resolve its debt burden, then the appointment of an Examiner, a Scheme of Arrangement under the 2014 Companies Act or an informal Scheme of Arrangement are viable options. If the underlining business has been so badly damaged by the effects of the pandemic, then liquidation and receivership remain the principal options.
For companies, the use of remedies which are provided for in the 2014 Companies Act should be seen by directors as a possible solution to be explored and not a stigma. The insolvency sections in the Act were inserted to be used by a company in difficult and should be availed of.
In the last 12 months we’ve advised many clients on the changing business landscape due to Covid-19. In this month’s ezine, our team looks at some key issues in the area of restructuring and insolvency as we head into 2021 as well as some significant judgements made in 2020 and how these might affect pandemic-induced insolvency cases going forward.
About the author: Michael Lavelle, Managing Partner
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