By Peter Flanagan (Irish Independant, Monday August 20 2012)

23pc of Irish firms have weak credit scores, says Gazette

CREDIT

FAR fewer companies are likely to go out of business over the next year than has been previously estimated, the head of a leading business publication has said.

The managing director of the Stubbs Gazette Credit Bureau, James Treacy, said fears of a huge wave of Irish business failures this year was overblown, but poor credit ratings were still hurting Irish businesses.

Reports have claimed that as many as half of the 100,000 or so SMEs in the country are on the verge of collapse, but Mr Treacy said research by his firm indicates somewhere between 10pc and 15pc of those firms are in trouble.

"Our analysis shows that 23pc of companies have really weak balance sheets and poor cashflows. But in reality, it will only be between 10pc and 15pc of those businesses that we would classify as high risk and that will actually fail within the next 12 months," he said.

"We analysed a sample of 10,000 active companies. Of those, some 23pc have credit scores falling below the threshold for providing credit. A tenth of these had at least one judgment held against them, as opposed to 4pc in the whole sample."

Mr Treacy also criticised what he perceived as alarmist reports from various bodies about the weakness of Irish business.

"No one disputes that many Irish companies are struggling in conditions that are perhaps unprecedented, but anyone pausing to absorb and reflect on this kind of sensationalist assertion would dismiss it out of hand," he claimed.

The Stubbs Gazette's research shows construction and related businesses are still struggling, with 33pc of such firms below what would be considered an acceptable credit threshold. Hospitality and retail sectors are also doing worse than average with 30pc and 27pc below the threshold, respectively.

Wholesale and freight transport are doing better than average.

"We estimate that some 2pc of actively trading companies of a reasonable size fail each year by going through the official insolvency process," he added.

"That number doubles when we take into account companies that simply disappear. So, with 4pc of companies definitely collapsing each year, we think it is quite reasonable to state that perhaps some 13pc are 'on the brink of collapse'. That is a world away from 'half of Irish businesses'.

"This is important to highlight. Trading conditions are difficult enough without unnecessary scaremongering which simply leads to despondency and an acceleration of a downward spiral."

The Stubbs Gazette is one of the most respected credit agencies in Irish business. Its eponymous magazine lists, among other items, High Court judgments that have been registered against individuals. It hit the headlines last month when the Irish Independent revealed that investors had secured a judgment of €2m against a number of people, including health minister James Reilly, which was published in the Stubbs Gazette.