Sunday 18 March 2018

Austerity putting brakes on economic take-off

Hughes Blake chief says all the signs of recovery are there – but businesses need to be freed from boom-era costs, writes Donal O'Donovan xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxx

Donal O'Donovan

Donal O'Donovan

Struggling companies can enter examinership for as little as €7,000 and the process can be the difference between survival and collapse for even the smallest businesses that might baulk at the idea of going to the High Court, according to insolvency expert Neil Hughes.

The 41-year-old managing partner of accountancy firm Hughes Blake has become one of the country's most prolific insolvency practitioners, with his firm acting in half of all Irish examinership cases last year.

Now he says the economy is showing real signs of recovery but Hughes is evangelical about the need to pull businesses and individuals out from under the weight of boom era costs and borrowings for things to really take off.

With 60 staff and offices in Dublin, Cork and Enniscorthy, the firm's core focus is on Irish-owned small and medium sized businesses, including exporters and domestic businesses across all sectors.

Neil Hughes says it means as a firm they have their finger on the pulse of what is really going on in the economy – and it's by no means all negative.

He's happy to reel off examples.

"We have a client that is a high quality print business. Last weekend, for the first time in five years, they had staff working over the weekend to keep up with orders. That's a business that produces promotional material for other companies that are investing to promote themselves," he says.

With many clients in the sector he's also seeing the positive impact on the hotel sector from the success of The Gathering tourism initiative.

"You can hear from managers that there is an uptake in business, but there is nothing like seeing energy on the floor, especially when it will be months before you see those trends reflected in official economic data, but it's the kind of activity that people will base their investment decisions on," he says.

To that end Hughes Blake recruited Stephen McGivern, formerly of rivals BDO, and with a track record of raising €125m for businesses, to head up a new corporate finance department.

"Rather than put a massive effort into pitching to half a dozen banks for finance that might not be there at the end of the process, there is an alternative of going down the corporate finance route," says Mr Hughes.

He thinks the combination of McGivern's track record and intelligence gained from his own insolvency work makes a compelling proposition for clients seeking finance.

"We know from our examinership work the investment capital that is out there looking to invest in traded businesses, we've never had an examinership where we don't receive unsolicited expressions of interest and so we've built and maintain a database of all of those potential investors," he explains.

His own major project, Hughes Blake itself, has been having a good crisis.

The firm has been around since 1922, set up when a canny tax inspector saw an opportunity to go out on his own advising clients on the tax implications of independence.

That Dublin firm later merged with a practice founded in Enniscorthy by Neil's father Kevin Hughes in the 1970s.

Neil Hughes joined in 1997 after training with Cooney Carey – where he had got his first taste of examinership working on the rescue of the Kentz engineering group.

He is now managing partner and over the past two years has overseen a major expansion.

Kieran McCarthy is now a partner, based in Cork, bringing the total number of offices to three. Total staff numbers have shot up by 50pc to 60 since 2011.

Probably the most obvious declaration of the firm's ambition was the appointment of Anthuan Xavier as chairman in 2011. Tapping Xavier was a big coup after he had overseen the 25 year development of his previous firm BDO Simpson Xavier into a major force in Irish business.

Neil Hughes says the expansion has been about fleshing out the business into a full service, multi-disciplinary practice.

That means being able to offer tax, audit and company secretarial services – the firm's Conor Sweeney is current president of the Institute of Chartered Secretaries and Administrators (ICSA).

Offering the full suite of services means going up against the so-called "Big 4" as well as smaller rivals that might have lower overheads, but Hughes says over-specialisation, say, on his own insolvency work would not make sense.

"Most clients and potential clients are not insolvent and the insolvency work itself also creates other kinds of opportunities," he explains.

A broad-based practice does mean the firm is seeing the full spectrum of the Irish economy.

There are reasons for optimism, according to Hughes – but failing to deal with the debt legacy is likely to have a long-term impact on growth prospects.

"The economy is not going to take off like a rocket for one thing because of the brake on the economy caused by austerity and the debt overhang.

"We are hopefully coming to the last austerity budget, but the debt crisis means the economy will remain hampered by an unusually high percentage of people who really can't contribute in economic terms."

"Without that I think we would be looking at a sharp economic recovery, all of the other ingredients for success are there – in the tax system, in the labour market where there are people looking to get to work, in interest rates that are low and set to remain low."

Hughes Blake now has two qualified personal insolvency practitioners (PIPs) already working with clients. Hughes is a fan of any process than can take people back on a path to economic activity.

"I don't see it being about writing off debt I see it as a path to having people make an economic contribution again," he says

He sees a lot of the demand for personal insolvency coming from the legacy of personal guarantees, which have made a nonsense of the principle of limited liability for business owners.

"The guarantees have left so many entrepreneurs feeling they have no way out.

"In that situation they will turn to some formal process – including the personal insolvency schemes here, or going to the UK."

Ideally it shouldn't need to come to either scenario, Mr Hughes says. Voluntary schemes agreed with lenders are the best outcome for all sides. In the current climate those deals aren't happening often because of the difficulty of agreeing terms when a borrower owes debts to a mix of banks.

He dismisses the idea that people should be denied access to the UK's more lenient insolvency system.

"The UK option is there. If people want to and are in a position to move they are perfectly entitled to do that. I don't understand this question of there being some moral issue," he says.

Fellow Enniscorthy man Ivan Yates has been one of the most high-profile bankruptcy exiles. Hughes acted for AIB as receiver over Yates's Celtic Bookmakers, successfully selling much of the chain, but was not involved in the bank's pursuit of the related personal guarantees.

But not everyone will take the UK route, even if they face insolvency, because family circumstances and finances sometimes simply don't allow it, Mr Hughes says.

On the business front, slaying the debt dragon is less emotive and the legal system is better established.

Mr Hughes wants to see examinership become easier for business by shifting cases from the High Court to local Circuit Courts for hearings, but even now he says the process is affordable for even small companies.

"We've streamlined the process by working directly with law firms and it is now a viable option for most owners."

Rent reductions are now at the heart of many insolvencies.

"Examiners can get rents cut in a matter or two or three days where a business might previously have been in negotiations for two or three years," says Hughes.

He's seen reductions as steep as 80pc and, for retailers in particular, it's the difference between closure and survival.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business