The Burning Question

I was asked earlier this week:  What is the most common question you are asked as an Insolvency Practitioner at the minute?   And the answer:  What are you seeing out there?   

Not what is happening outside my office window, but more, how is the economy faring and how are businesses finding it.   

So how does it all look on this sunny day in May?

At first glance, the economy appears to be doing okay.   Businesses are expanding, the labour market is tighter than ever, the Top 250 companies continue to expand and succeed as they battle to hold their place in the league of high performers.   And business failures and insolvency levels in Northern Ireland remain at their lowest for more than a decade. 

But for many businesses and individuals across the region, it’s not quite as it first seems. 

At Gildernew & Co, we have seen a notable ramp up in new restructuring and insolvency enquiries recently; these new enquiries fall into five broad camps:

1. The impact of sustained high interest rates

Despite speculation that interest rates would drop back, the Bank of England’s Monetary Policy Committee has today maintained its stance and kept rates locked at 5.25% for at least another month.  The hey days of 0.1% remain a distant memory – and there is no question that the cost of borrowing is putting greater pressure on already struggling businesses across Northern Ireland.  Whilst rates are expected to come down, the scale back is going to be much slower than first expected and borrowers need to truly understand the real cost of borrowing, and ensure they are generating sufficient surplus cash to repay debt month on month.

2. A rapid slowdown in business activity

Certain manufacturing businesses have seen a drastic drop-off in new customer orders since the middle of last year; this is particularly true in the heavy engineering sector, with subcontractor businesses particularly seeing a sharp decline in business activity.   Whilst the heavy machinery multi-nationals likely have the balance sheets to weather the storm, smaller feeder businesses will quickly feel the cash drain if they do not act quickly to control their cost base, and equally pivot into new products and markets.

3. Hike in HMRC and LPS enforcement action

A weekly review of Belfast High Court’s Insolvency listings reveals a marked increase in enforcement activity by HM Revenue & Customs and Land & Property Services (business and domestic rates) since the start of this calendar year.  Following a lengthy drought of almost four years, the tap has been turned well and truly on again.  For some taxpayers with Revenue arrears, they are surprised it has taken so long.  For others who have not paid VAT or PAYE since March 2020, they are shocked when they receive a final demand from a Field Officer, despite not having parted with a penny for what feels like forever.  For taxpayers with VAT, PAYE, corporation tax or income tax arrears, our advice is to get a payment plan in place and stick to it; otherwise, liquidation or bankruptcy is a looming reality.

4. The financial impact of the new National Minimum Wage

The hike of almost 10% in NMW to £11.44 per hour for over 22-year-olds will hit many businesses hard in the months ahead.  And not only those who pay at the lower end of the pay scale.  We are seeing employees across all sectors asking for a like for like 9.8% rise in their rate to match the NMW uplift.   Many businesses simply cannot afford wage rises at this level.  Businesses who have passed on inflation hikes to customers over the past 24 months are now very reluctant to put their prices up again.  But the reality is that businesses have no choice.   Shy away from increasing your costs and you will pay the price in the long term.

5. The end of the Debt Warehouse scheme

Northern-Ireland businesses battling to get Time to Pay arrangements over the line with HMRC have looked on enviously as taxpayers in the south of Ireland were able to lock away their debt in the Revenue’s debt warehouse and park the debt interest-free for an extended period.  But the warehouse “closed” for good last week, and for those businesses who have no phased payment plan in place, the Sheriff is back on the road enforcing for arrears.  We expect to see a ramp up in insolvency activity in the south of Ireland as a result.

If you have a client in need of specialist restructuring or insolvency advice, or if any of the above commentary has brought a specific client situation to mind, contact myself or Gary Bonner (gary.bonner@gildernewandco.com) to arrange an appointment.  Our initial consultation is free of charge, and we are happy to travel to your premises to meet your client.  Early intervention is often the key to a positive outcome.

Gildernew & Co. has a long and established history in delivering restructuring and insolvency solutions to businesses and individuals across the island of Ireland.  Our team of expert advisors has more than 60 years’ combined experience in delivery solutions to clients in challenging situations.  We are here to help.