Enterprise policy issues for distressed businesses following the unwinding of pandemic supports

Fergal McCann and Niall McGeever
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Fergal McCann: Central Bank of Ireland
Niall McGeever: Central Bank of Ireland

No 9/FS/22, Financial Stability Notes from Central Bank of Ireland

Abstract: The unwinding of COVID-19 pandemic supports and the effects of renewed inflationary pressures have the potential to expose latent distress among a cohort of Irish businesses. In this Note, we discuss the options available to policymakers to address a potentially large volume of business distress that may emerge if these risks were to crystallise. We argue that an effective policy response will require a trade-off between the targeting of restructuring options at viable firms and the scalability of policy action in the short term. The introduction of the Small Company Administrative Rescue Process (SCARP) is a positive development and provides a useful restructuring tool for many small companies. However, we flag some potential risks associated with the rollout of SCARP and we consider potential policy actions to mitigate these risks. We also discuss contingency options in the event that formal insolvency channels have difficulty processing a large number of cases, were they to emerge.

Date: 2022-10
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