Sunday 17 November 2019

Legal tweak could save 15,000 jobs

Tom Prendeville

Businesses call for 'administration lite'

THE plight of Target Express, which hit the skids, threatening almost 400 jobs, is far from unique and, according to insolvency experts, is the norm.

Neil Hughes, who runs one of the country's leading examinership and insolvency firms, Hughes Blake, has carried out extensive research into firms going bust and says that over 15,000 vulnerable jobs could be saved every year and millions saved in dole and redundancy payments if a minor change was made to the law.

The nub of the problem is that most small firms have no option but to go into liquidation -- with the loss of all hands -- because of a fear of the legal costs associated with a High Court Examinership.

Currently, the cost of providing unemployment benefit to the 15,000 people who lose their jobs is in the region of €300m every year.

As it stands, 98 per cent of troubled Irish firms are dissolved, whereas in the US one in five is saved via Chapter 11 administration.

When a troubled firm goes into examinership, a legal framework is put in place to protect it from creditors -- and, if the firm is viable, debts can be renegotiated.

"Thousands of people have lost their jobs as the numbers of Irish businesses going bust has rocketed. Over 2,000 businesses have been lost in the past 12 months, about six firms every day -- we are now at crisis proportions.

"Every job lost costs the State on average €20,000 per annum in social welfare costs, and that doesn't include the redundancy costs that the State has to pick up.

"Recent figures from the US have shown that 22 per cent of insolvent companies there enter Chapter 11 process to avoid liquidation. They kept trading and saved the jobs at stake in the business.

"In the UK, 17 per cent of businesses that became insolvent went into administration and took the trading route out of their troubles.

"In Ireland, the equivalent process is examination -- and only 2 per cent of Irish businesses enter the process. The other 98 per cent end in liquidation or receivership with job losses," explains Hughes.

Hughes believes that examinations in Ireland should be made more like the system in the US, where the process has been simplified to filling out a form and lodging it in a local court house.

"All it requires is a small change of the law and the new system could be up in a number of months," added Neil Hughes. "A new process could help save 300 to 400 companies every year, with perhaps 15,000 workers kept in employment."

Mark Fielding the chief executive of Isme, which represents small to medium-sized businesses in Ireland, has given his backing to the idea.

"Because of the legal fees, struggling businesses have no option but to go into liquidation -- and once that happens, it's all gone from the small business owner forever.

"In most cases, creditors would prefer a company to trade on. If a business goes into liquidation, then once a liquidator pays the banks and fees there's nothing left over.

"If we had an examinership/'administration lite' held in a circuit court or even a district court, there would be a huge drop in fees to perhaps €5,000. It would only take a couple of words to be changed in the existing legislation," said Fielding.

There could be some light at the end of the tunnel, the Company Law Review Group, which is a statutory body, is due to report to Richard Bruton, Minister for Jobs, Enterprise and Innovation, at the end of the month, strongly recommending changes in the law to allow for the 'examinership lite' option.

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