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Crowe calls for reintroduction of Exchequer support for redundancy costs
Concerns over Brexit and the fall in sterling’s value is having a crushing effect on margins for many Irish export-dependent businesses.
Since 2015, sterling has recorded a 29% decline in value, with the EUR/GBP exchange rate fluctuating from £0.72 to £0.93. Very few businesses that can absorb anything like that impact on margin.
It is inevitable that many will need to turn their focus inward and review their operations to find greater efficiencies.
Some companies will need to discontinue certain business lines or invest in technology to find greater efficiency. The accepted outcome is that businesses will need to reduce headcount and so a greater number of redundancies will be required to ensure as much of the business is retained and made sustainable.
In our experience, for companies to improve their chance of survival, the earlier the better for these difficult decisions are taken.
One challenge that is delaying these decisions is how to fund a redundancy programme in a business that has had steadily decreasing margins and profits since 2016, when sterling’s value started to fall.
In the past the Department of Employment Affairs and Social Protection Insolvency Fund provided funding assistance by absorbing 60% of the statutory redundancy cost. This made these redundancy programmes more affordable. However, following the recent financial crisis where liquidations were widespread, the Department of Employment Affairs and Social Protection reduced the absorption credit to 15% in 2012 and ultimate to zero in 2013. In addition, during this period the department prioritised redundancies from entities that were closing down rather than downsizing.
Now that the economy is on a better footing, as a Brexit support measure and to assist companies streamline operations, we believe it is an appropriate time to re-introduce this financial assistance measure to cover 60% of the cost of redundancies by viable companies. This will help restructure payroll costs and improve efficiency and so protect the balance of the jobs in these vulnerable entities.
Employers should note that in instances where cash flow of the company will not support the redundancy cost the Department of Employment Affairs and Social Protection Insolvency Fund can step in and cover the cost but thereafter stand as a creditor for 100% of the amount. Often this preferential status and the level of monies to be repaid will limit the ability of the company to raise funding needed to invest in upgrading plant and machinery as part of an efficiency programme and so is a barrier to a successful restructure proposition.
Aiden Murphy is a partner with Crowe, practicing in the areas of corporate finance, rescue and restructuring. If you would like assistance with downsizing or restructuring your organisation, contact Aiden or a member of our corporate finance team.
Corporate Recovery services
+353 1 448 2214
Director, Restructuring & Insolvency
+353 1 448 2200
Corporate Recovery services