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Businesses feel the pain as it’s time to repay Covid loans

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Gary McDonald Editor-in-Chief

April 29, 2022 01:00

There were 56 business insolvencies in Northern Ireland between January and March, four times as many as in the same period a year earlier.

And while collapses remain below pre-pandemic levels, it looks like businesses are starting to feel the strain, and for many it’s out of the frying pan and into the fire, with inflation spiraling out of control. , energy at unsustainable prices and Covid recovery loans to be repaid.

Data from the Department of Economy shows that over the three-month period, there were 28 voluntary creditor liquidations (CVL), which is a procedure initiated by the managers of a company to voluntarily bring about the cessation of activity. .

There were also 19 compulsory liquidations, five administrations, three company voluntary arrangements (CVA) and one receivership.

The total business liquidation rate in the year ending March in the north was 19.1 per 10,000 active businesses, an increase of 8.4 (compared to a rate of 10.7 for 10,000 active companies) during the comparable period in 2021.

And while it appears the pandemic is largely under control, the debt piled up by many companies to stay afloat is substantial.

After the various Covid loans, it is now time for recovery, with repayments of BounceBack and CIBLS loans proving to be a significant drain on companies’ working capital.

An analyst told Irish News: “Many businesses that have been buoyed by government grants and support are now running out of money and have to shut down one day.

“Expect the data to deteriorate, potentially significantly, in the second quarter. For many companies, the current headwinds are a bridge too far.”

Supply chains are collapsing in some sectors, with suppliers going bankrupt due to rising logistics and transportation costs, increases in fuel and utility costs, and this is trickling down to businesses.

Meanwhile, a separate report revealed a 44% year-on-year increase in businesses in Northern Ireland showing signs of ‘critical distress’ in the first quarter of 2022.

The latest “Red Flag Alert” data from insolvency specialists Begbies Traynor showed an increase of 8% between the last quarter of 2021 and the first three months of this year.

The category includes businesses that have financial problems such as County Court Judgments (CCJs) over £5,000 lodged against them.

Data showed that 8,670 businesses in Northern Ireland experienced ‘significant’ distress in the first quarter of the year. This includes companies facing CCJs below the £5,000 mark.

Although there was a marked year-on-year decline in the lesser category of business distress, insolvency expert Lawrence O’Hara, who runs Begbies Traynor’s Northern Ireland operation , warned businesses here to prepare for tough times ahead amid continued global uncertainty over the escalating energy crisis and conflict in Ukraine.

“While many will be relieved to see that business distress has not increased over the past quarter, we fear this will give business owners a false sense of security and distract from the enormous challenges in Classes.

“As beleaguered businesses reel in the brunt of two years of Covid disruption, supplies risk running out as we face the most severe energy crisis since the 1970s.

“And that, combined with the worsening situation in Ukraine and further shutdowns in China that are compounding supply chain issues, means the economic landscape is likely to be extremely challenging in the near term.”