Rising examinerships save Irish jobs as vulture funds circle

More struggling firms encouraged to seek protection from "ticking time bomb"

Rising examinerships save Irish jobs as vulture funds circle

Picture by Mosa'ab Elshamy AP/Press Association Images

Successful business examinerships helped retain 380 Irish jobs during the first three months of 2017, according to the accountancy firm Baker Tilly Hughes Blake.

This marked a dramatic increase from the 138 jobs that were saved in the same period last year.

One of the key reasons for the increased incidence of examinership is the pressure firms are coming under from private equity funds. These vulture funds acquired "thousands upon thousands" of loans that small businesses had originally taken out with Irish banks and were subsequently sold on by the likes of NAMA.

Private equity firms impose tight timelines to have their capital repaid and will frequently prioritise repayment of debts over the survival of an otherwise sustainable business and the jobs it provides.

As Baker Tilly Hughes Blake managing partner Neil Hughes told Breakfast Business, however, examinership can offer protection.

"The private equity funds will rightly argue that they have contributed significantly to Ireland's economic recovery because they brought the capital that would have kickstarted the property market again..." said Hughes.

"That's true, but I suppose what isn't being talked about is the fact that that capital came with very strict time limits, it came with milestones. These are very focused commercial concerns, very focused on profit...

"I suppose for many business owners it does feel like a ticking time bomb in their business, whereby there is always that risk that the secured creditor will look to enforce."

Temperature rising

Hughes also noted that the correspondence from these funds can be quite aggressive:

"The temperature is certainly rising in terms of the relationship that exists between the funds and the businesses involved. And it's happening right the way around the country."

Businesses from different sectors are now seeing the benefits of examinership, with security firms and multi-unit retailers among them. Some 60 jobs were also saved in the west of Ireland when a mechanical contractor entered examinership. And the courts are open to them:

 

"We have seen no petitions for protection that haven't succeeded. Certainly the courts are predisposed to businesses that are fundamentally viable that are providing employment in the state. They are being protected and they are getting the bounce of the ball from the courts when they apply."

Hughes noted that while vulture funds like "100% control", they should be amenable to providing breath space as the loans are likely to be paid off:

"We're not looking at haircuts... we're looking at breathing space.

"It's becoming a more and more common theme because property values have increased and are set to increase perhaps even further.

"Many secure creditors should have no quarrel with the concept of breathing space for restructuring if they in fact are going to get paid in full at the end of that process."

Despite this, the number of companies going the examinership route remains small. While roughly 22% of struggling US businesses avail of a similar restructuring process, the Irish numbers are "stubbornly low" at around 2%.

"I think there's a lack of awareness about the process," said Hughes. "Which means that 92% of businesses that could be viable, particularly in a recovering economy, are lost to liquidation."