Tuesday 16 January 2018

Exciting deal on debts and a boost for start-up firms

Neil Hughes
Neil Hughes
Sarah McCabe

Sarah McCabe

LAST WEEK'S small business news was all about debt – a subject that continues to snowball after being brought to the nation's attention by UCD economist Morgan Kelly.

The latest development is that the country's biggest banks, AIB and Bank of Ireland, have met their targets for restructuring distressed small business loans – but the Central Bank won't tell us what those targets are, or how they were reached. While the range of options for banks and businesses in arrears includes the selling of assets and loan extensions, it also involves more drastic measures like receiverships and examinerships.

Last year, the Central Bank said that half of the country's €50m small business loans were non-performing. Morgan Kelly, who called the housing collapse and subsequent recession, said the issue posed a major risk to the country's nascent economic recovery.

But that wasn't the only development on the SME debt front. In more positive news, the Irish Independent revealed that a debt-forgiveness scheme for small business is to be examined by a high-level working group being set up by the Government.

Banks will be asked to cancel some company debts in exchange for shares in even the smallest firms, according to sources close to the process.

The idea is one of a number on the agenda for the new working group in the process of being established under the umbrella of the State-led Consultative Committee on SME Funding.

The lack of equity investment for SMEs is emerging as a significant blockage in the economy, particularly as things start to pick up and the demand for capital increases.

The Consultative Committee on SME Funding brings together representatives of agencies including the Department of Finance, Department of Jobs and Enterprise, Enterprise Ireland and the county enterprise boards as well as industry groups such as ISME and the Small Firms' Associations and the banks.

But another similarly named organisation had much more dire things to say.

The National Council for Competitiveness issued a damning report on Tuesday arguing that business and credit costs are crippling Ireland's competitiveness.

Irish companies pay around 31 per cent more in interest on bank loans of up to €1m, the council found, and 27 per cent more for loans higher than that.

Even revolving loans and overdrafts also cost more for Irish business than for their counterparts on the continent, taking in 11.5 per cent more in interest, on average, as of November 2013.

These high interest rates are particularly concerning given the dependence of Irish businesses, especially small businesses, on banks for funding.

A recent Central Bank paper found that Irish SMEs are among the most heavily reliant on banks for funding in the EU, although there has been a small move over to trade credit and equity since the crash.

Back to the subject of debt, there were historic scenes in Naas courthouse at Ireland's first circuit court examinership. Finally, small businesses have access to a low-cost version of the traditionally expensive procedure.

Celbridge Playzone, which has 27 employees, was the first to try and make use of new laws introduced on Christmas Eve that make the restructuring process less costly.

Examinership, the legal mechanism that allows a company to restructure with court approval while enjoying protection from creditors, was until recently confined to the High Court – meaning heavy legal fees and little attractiveness for SMEs.

"This will be an historic occasion and should lead the way for others to follow – giving SMEs an accessible and cost-effective route to restructuring," said Neil Hughes, managing partner at restructuring specialists Hughes Blake.

Mr Hughes now expects a surge in applications. One of the biggest advantages of examinership is that companies can use it to renege on costly rent agreements.

Data for the January to April 2014 period also indicates that the process, once the sole preserve of big business, is increasingly being used as a recovery tool for family-owned and indigenous companies.

Seven of the eight businesses that have exited the process since the start of the year – including Dublin stalwart Flannery's Pub – are SMEs. The seven examinerships, which also include shoe chain Carl Scarpa, windowframe company Star Elm Frames, convenience store Tomlo and an operator of a United Colours of Benetton outlet, saved a total of 191 jobs.

Ending the week on a positive note, there was a boost for start-ups as Europe's biggest angel investor event was confirmed for Dublin.

About 350 of the world's richest start-up investors will descend on the capital next month when the 14th Eban Congress takes place in Dublin Castle on May 19 and 20.

International investors and business angels, including some of the leading 'super-angels', along with venture capital firms and early stage fund managers, will come together to discuss the European business angel landscape and how to support and grow it, and to share their knowledge and experience.

Sunday Indo Business

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