Despite severe economic challenges, Northern Ireland has avoided the wave of corporate failures seen in England and Wales, though future risks remain uncertain, writes Gareth Latimer
Since the onset of the global pandemic in March 2020, assessing the restructuring market has become increasingly important. This is evident by the recent publication of The Northern Ireland Labour Market Report and The Company Insolvency Statistics for Northern Ireland, which gives a detailed analysis of redundancies and insolvencies in Northern Ireland.
Below, we discuss what this trend could mean.
Redundancies and insolvencies in Northern Ireland
Published in July this year, The Northern Ireland Labour Market Report has put the annual number of confirmed redundancies in Northern Ireland up to June 2024 at 2,560 – almost double the figure for the previous year (1,340).
Similarly, The Company Insolvency Statistics for Northern Ireland for June 2024 highlighted 17 corporate insolvencies in June 2024, which was 13 percent higher than in June 2023.
Understanding the statistics
As with any statistics, we must delve beyond the headlines to see their impact on the Northern Ireland market. The raw numbers tell one story, but the underlying trends and their broader implications reveal much more about our economic landscape.
Initial predictions and government intervention
When the COVID-19 pandemic hit the UK in March 2020, some commentators predicted a ‘tsunami of corporate failures and mass redundancies’. Thanks to the introduction of the Coronavirus Job Retention Scheme, commonly known as the Furlough Scheme, the predicted large number of redundancies did not occur.
Additional liquidity measures
Several other liquidity measures, including the Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS) also played their part in staving off the large number of corporate failures many had predicted.
Financial lifelines, in the form of loans and grants, were available to allow companies to survive the various lockdowns and the unprecedented drop in GDP in April and June 2020.
However, having recovered from the economic effects of the pandemic, we then had the Russia-Ukraine war and the subsequent energy crisis. High inflation and interest rates followed.
It is no wonder, then, that companies have been struggling.
New insolvency procedures
To help companies facing insolvency, two new procedures were created when The Corporate Insolvency and Governance Act 2020, which also applied to Northern Ireland, was implemented.
- Company moratorium: Designed to give struggling businesses formal breathing space in which to explore rescue and restructuring options, free from creditor and other legal action. Except in certain circumstances, insolvency proceedings cannot be instigated against a company during the moratorium period.
- Restructuring plans: Introduced to support viable companies struggling with unmanageable debt obligations. These plans allow the court to sanction a plan that binds creditors to a structuring plan if it is deemed fair and equitable. Creditors vote on the plan, but the court can impose it on dissenting classes of creditors (cram down) if the necessary conditions are met.
However, despite the introduction of these new procedures, between 26 June 2020 and 30 June 2024, there was only one moratorium in Northern Ireland and no restructuring plans. The figures suggest that these options may hold less relevance for the Northern Ireland market compared to more traditional restructuring options.
Labour market report insights
One might have expected the Northern Ireland Labour Market Report to paint a bleak picture. The UK economy slipped into a mild recession in 2023, and the cost of living crisis continues.
However, the anticipated surge in redundancies due to corporate failures has not materialised. In fact, the unemployment rate in Northern Ireland for March to May 2024 fell over the quarter and the year to 2 percent.
It is useful here to analyse and compare the June 2024 insolvency statistics. Northern Ireland saw 17 company insolvencies. And while each of these cases demonstrates financial distress for the company and employees involved, considering the economic backdrop, one might have anticipated a higher number of corporate failures.
Indeed, this picture contrasts sharply with the headline insolvency statistics from England and Wales, where registered company insolvencies in June 2024 reached 2,361 – 16 percent higher than in May 2024 and 17 percent higher June 2023.
The number of company insolvencies in England and Wales have remained much higher than those seen both during the COVID-19 pandemic and between 2014 and 2019. The disparity suggests that Northern Ireland’s insolvency rate is proportionately lower than that of England and Wales.
Whether this resilience will hold, or if the rising tide of corporate failures in England and Wales will eventually reach these shores, remains to be seen.
Future outlook with new government
Given the recent Labour Party landslide victory in the UK, many are wondering how this shift will impact corporate failures and job redundancies. The new Chancellor, Rachel Reeves, is poised to play a crucial role. A former Bank of England employee, Reeves has continually stressed the importance of fiscal discipline, and given the current state of public finances, she may have no choice. It appears that the economic strategy is to grow the economy, and this will improve the Treasury coffers; easy to say but harder to deliver.
The future
It seems that in 2024, Northern Ireland has been somewhat insulated from the wave of corporate failures sweeping through England and Wales. While specific factors contribute to this relative calm, the recent reports suggest that, despite ongoing economic pressures, we’ve seen more of a ripple than a tsunami of insolvencies.
Thankfully, the anticipated surge in corporate failures has not materialised. Clearly, this is positive news for the economy. Yet, with the recent economic headwinds, one can’t help but wonder if we are simply delaying the inevitable.
Will 2025 finally bring the wave of corporate failures some have been expecting? Only time will tell.
Gareth Latimer is a Director at Grant Thornton NI
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