Debts, defaults and decisions

The Companies (Miscellaneous Provisions) (Covid-19) Act 2020 (“the Covid Act”) was introduced by the Government in 2020 to mitigate some of the issues arising during the Covid-19 pandemic. The Covid Act made changes to existing legislation on a temporary basis during the pandemic.

A number of the measures introduced by the Covid Act have been extended since 2020, in particular in relation to the debt threshold for the commencement of a winding up by the court. This temporary amendment to the winding up threshold has however now reverted to the pre-Covid levels.

Winding up threshold

A key element of the original changes enacted by the Covid Act was the increase of the threshold for commencing a winding up by the court from €10,000 (individual debts) and €20,000 (aggregate debts) to €50,000 (for both a debt due to a single creditor and to two or more creditors in aggregate). This gave companies who were struggling to meet their debts as they fell due more leeway to negotiate with the creditors or restructure their finances.

The impact of this amendment to the legislation can be seen from the number of winding-up orders made by the High Court since the Covid Act, which decreased by 43% from 2019 to 2023.

As with the majority of Covid-19 supports introduced by the Government, this provision has now been stopped. As of 1 January 2024, the threshold for the commencement of a winding up by the court has been reset at €10,000 (individual debts) and €20,000 (aggregate debts). This reduction makes it easier for creditors to initiate the winding-up process against companies with smaller debts, potentially affecting small businesses' ability to continue trading.

On the other hand, from a creditor perspective, the reduction will offer increased protection by enabling them to initiate winding-up proceedings against debtors with smaller outstanding amounts and will enhance the debt recovery process.

Coupled with the upcoming deadline of 1 May 2024 for the repayment of taxes in the Tax Warehousing Scheme, along with other economic headwinds such as cost inflation, higher interest rates and increases in employment costs, we are likely to see an increase in corporate insolvencies in 2024.

If you wish to find out more about any aspect of the above or wish to seek professional advice about restructuring or winding up a business, please do not hesitate to contact our restructuring and insolvency team for a confidential consultation.