Irish businesses getting no second chance at survival
With 170 companies collapsing every month, according to current numbers, the destruction of wealth in Irish business is reaching catastrophic levels.
Unsecured trade creditors in particular are bearing a staggering and unfair burden, and while insurance can take some of the weight off this group, the losses for this sector are eye-watering.
A total €1.19bn of unsecured debt was wiped out last year, for instance. This may seem a small figure in the context of giant Irish bank recapitalisations. But for small firms, who rank far down the creditor list, this spells nightmarish losses that often bring down whole clusters of businesses.
But what makes company collapses so devastating in Ireland at present is that so few business people are allowed a second chance, due to banks in the main, but also because of the insolvency system and its narrow focus.
While examinership was introduced in Ireland to be our version of America's Chapter 11, the figures suggest this option has now been almost cast aside as a solution to company insolvencies.
While Fallon & Byrne, Xtra-vision and Mr Binman recently used this process, the overall figures suggest companies don't see it as a viable step to get a second chance -- although it is believed Eircom may be a big user of the process this year.
Of the 1,930 companies that collapsed last year, only a measly 1pc of them opted for examinership. This may simply be because the directors had no desire to be stuck with a losing firm and were happy to give up control.
But one suspects it was also because the support of secured creditors (banks) was not available or forthcoming, or there was no fresh investment available for the business, again essentially making examinership unviable from the point of view of the banks -- whose support is needed to allow the process to be successful.
Certainly the reliance on examinerships in Ireland seems to be far lower than the reliance on Chapter 11 in the US -- although the latter has been abused in the eyes of many by the endless Chapter 11s of the US airline industry.
The resort to outright liquidation or sale as a going concern (taking out the current shareholders and directors in many cases) is one thing, but it is not the only way businesses are prevented from having a second chance.
The second way is the massive reliance on personal guarantees as security for ordinary commercial loans.
While this may have its merits in terms of personal loans, in many cases plain vanilla company loans were secured using the personal assets and credit standing of individuals.
These individuals are now effectively ruined or have to take to the bankruptcy courts to reinvent themselves.
In many cases we all take vicarious pleasure from the troubles of some of these individuals, but the reliance on personal guarantees is going to deprive Irish business of some talented people who will be buried under a mountain of debt for their remaining years.
Such is commercial life -- although that is not the case in most jurisdictions where businesses are allowed to fail without so much personal and long-term damage.