A trickle or a trend? Earlier this month, the chef Dylan McGrath applied to the Circuit Court to restructure the debts of two of his restaurants under Scarp, the new process for small and micro companies. McGrath is seeking to deal with multi-million euro debts connected to two eateries, the Rustic Stone and Brasserie Sixty6.
Days later, Lenehans Bar & Grill – a fashionable restaurant in the south Dublin suburb of Rathmines – also moved to restructure its business under Scarp legislation. Lenehans is owned by the husband-and-wife team of Fiona McHugh and Paul Byrne, who were previously behind Fallon & Byrne.
More recently, the company behind the Tickets.ie event booking website sought a rescue scheme for the business. The company, which continues to trade, was understandably heavily impacted by Covid lockdowns and the lack of live events.
These are the type of companies that Scarp was intended to help – small businesses that could not afford the fees associated with a High Court examinership, but which could be salvaged through a restructuring process. And make no mistake, there will be more small businesses utilising the process over the coming months.
After all, data from both Deloitte and PWC show that the level of insolvencies over the past 18 months has been artificially low due to the unprecedented government subsidisation of the economy. David Van Dessel, a partner with Deloitte, recently told me that the full effects of high inflation, soaring energy costs, global supply chain issues and labour shortages have yet to have any significant impact on corporate insolvencies.
As those subsidies end, and the impact of higher inflation and energy costs intensify, the scars will become apparent. And it will be more acute next year when the tax authority starts to claw back to €2.9 billion in tax that was warehoused during the pandemic.
The huge intervention showed the vast power of the state, and it played a key role in maintaining employment during the crisis. But it was never going to last, and huge parts of the domestic economy are now bracing themselves for a new reality.
This was something that Stephen Kinsella examined in depth in his column last week, where he outlined how sections of the domestic economy, particularly wholesale and retail, will be worst exposed.
Stephen argued that no one is especially worried about ICT workers, multinational employees, construction workers, or the public sector. Yes, the tech sector is volatile, but, overall, those areas are booming. The real issue is with bricks and mortar retail and restaurants, whose industries have been fundamentally restructured as a result of the pandemic.
As Stephen put it:
“A key policy question is what happens to these sectors when the subsidies drop to zero. We don’t have a clear plan, and the prospect of subsidising entire sectors of the economy for several more years seems deeply undesirable. It also opens other sectors to compete for the same subsidisation. We cannot all live from the taxpayer’s largesse.”
This is why it is so important that the government really seeks to put in place a suite of measures and policy changes that will really help indigenous businesses going forward.
Official Ireland is best in class at enticing and retaining foreign direct investment. However, as the domestic economy deals with heightened costs and a lack of wage subsidies, some of that intellectual firepower needs to be directed at domestically facing businesses.
Ibec recently proposed a “national coordinating agency” to focus exclusively on the domestic-facing enterprise base. The lobby group said the agency should have equal status to IDA Ireland and Enterprise Ireland.
“Ibec’s view is that whilst there is a clear delineation of enterprise agencies into outward-facing growth and inward investment, there is a significant gap for companies facing the domestic market alone,” the group said in a recent government submission.
It is an eminently sensible proposal; Enterprise Ireland is geared towards companies with an export focus, which essentially cuts out businesses focusing on the domestic market. After all, not every business needs to – or is capable of – developing an export market.
The Local Enterprise Office network is doing a fine job, but it is more focused on helping companies get going, as opposed to helping them survive or scale. Meanwhile, there is a plethora of other trade boards looking at specific sectors. But there is no real port-of-call for domestic-facing companies – and these are the companies that are poised to feel the heat during the coming months.
This is not a new issue. Entrepreneurs and investors have been calling out the mismatch between focus on FDI and domestic business.
Colm Lyon, the fintech entrepreneur and prolific angel investor, argues it is part of a broader malfunction, where the attention of policymakers is geared towards multinationals and not towards Ireland’s start-up community. He told me last year how he had witnessed it first-hand while sitting on a government advisory committee for financial services. His proposals to promote indigenous entrepreneurship were gently deflected, while asks from big insurance companies were acquiesced to.
“I remember wondering why indigenous firms were being put into second place all the time at this table. Somebody from the Department of Finance said it was about the jobs,” Lyon says. “But it’s not just about job creation – it’s about enterprise creation, and that’s what we’re missing.”
Brian Caulfield has written on the website on a number of occasions about how specific tweaks to share incentive and tax break investment schemes could dramatically help both start-ups and scale-ups. Yet, there has been little action.
The government did a commendable job nursing companies through the pandemic. It now needs to ensure that they do not suffer from long Covid.
Elsewhere this week, Robert Troy owed to the inevitable and resigned as a junior minister amid increasing political concerns over his property interests. In an interesting take, Thomas argued last week that Troy is another product of the blanket exemption of landlords from procurement rules. For decades, Government policy has been to outsource social housing to private landlords while telling them that they needn’t bother with common public supply transparency obligations. This came back to bite one of their own.
Meanwhile, I examined how the controversy has exposed the failings of Sipo, the state’s ethics watchdog. As it stands, despite repeated pleas, it lacks the legislative tools and financial means to adequately fulfil its role. I detailed how successive governments, dating back twenty years, had ignored major recommendations to overhaul the body.
American tech executive Katie Laidlaw has teamed up with Pacific Lake Partners to acquire learning simulation platform ETU. Founder Declan Dagger and outgoing CEO Michael Veale talked to Tom about the company, the deal and the future.
Share buybacks from cash-rich PLCs are in vogue. And, due to a legislative anomaly, they come with a tax benefit. However, as I reported last week, that loophole could soon be closed off.
Sinead O’Sullivan was forced to leave Ireland during the last financial crash. She returned home with no assets, a fractured life, and spiralling rents. Meanwhile, she feels the Generals waging an economic war against her generation remain the same. As she put it in her column last week: “I’m out.”
A senior member of the Cork Opera House management team lost his job when he refused to retract an unsubstantiated allegation against the former CEO. A lengthy employment battle between the two sides ensued, leading to claims of “insubordination”, and alleged “fraud”. Francesca had the story.
Plus, we had detailed company analysis on Stripe, Milano, Cineworld and Alvarez & Marsal.