Supporting businesses to launch & scale

Ciaran Kenny

The Small Companies Administrative Rescue Process (SCARP) – Everything you need to know, and when you should avail of it.

Recent figures from accountancy firm Azets shows only 13 Small Company Administrative Rescue Process (SCARP) cases commenced in the first half of 2024, a 28% decrease compared with the same period for 2023. This is in spite of Deloitte reporting that insolvencies are in fact up almost 25% for the first six months of this year compared with the same period in 2023.

So why aren’t more businesses availing of SCARP? Perhaps because they’re unaware of what it is, and when they should avail of it.

In this helpful article, we’ve outlined what SCARP is, and when companies should avail of it.

 

The Irish Small Companies Administrative Rescue Process (SCARP) is a legal framework established to aid small and micro companies in Ireland experiencing financial difficulties. Enacted through the Companies (Rescue Process for Small and Micro Companies) Act 2021, SCARP offers a more accessible and cost-effective alternative to traditional examinership, which can be prohibitively expensive and complex for smaller businesses.

Understanding SCARP

Eligibility Criteria: To be eligible for SCARP, a company must meet the definition of a small or micro company under the Companies Act 2014. This involves satisfying at least two of the following conditions:

  • A turnover not exceeding €12 million.
  • A balance sheet total not exceeding €6 million.
  • An average number of employees not exceeding 50.

Additionally, the company must be insolvent or likely to become insolvent, and the directors must believe there is a reasonable prospect of the company’s survival.

Initiation: The process begins when the company’s directors resolve to appoint a process advisor, who must be a qualified insolvency practitioner. The advisor assesses the company’s viability and formulates a rescue plan aimed at restructuring debts and returning the company to solvency.

Moratorium Period: Upon the appointment of the process advisor, the company enters a moratorium period lasting up to 70 days, during which creditors cannot take enforcement actions. This period can be extended by up to 50 days with court approval if necessary to finalise the rescue plan.

The Rescue Plan: The process advisor collaborates with the company and its creditors to develop a rescue plan. This plan typically includes debt restructuring measures such as debt write-downs, extended repayment terms, or converting debt to equity. The plan must be approved by at least 60% in number and 50% in value of the creditors in each class affected by the plan.

Court Involvement: SCARP is designed to minimise court involvement, making it less costly and more efficient. Court intervention is limited to resolving disputes or objections from creditors and approving extensions of the moratorium period when necessary.

Conclusion: Once the rescue plan is approved by the creditors, it becomes binding on all parties. The company then implements the plan under the process advisor’s supervision. Successful implementation allows the company to exit the process and continue trading as a solvent entity.

When Should a Company Avail of SCARP?

Determining the right time to avail of SCARP is crucial for maximising its benefits. Here are key indicators that a company should consider entering the SCARP process:

Early Signs of Financial Distress: Companies should consider SCARP at the early signs of financial trouble, such as declining revenues, increasing debts, or cash flow issues. Early intervention can prevent the situation from deteriorating to the point where recovery becomes impossible.

Creditor Pressure: If creditors are starting to apply pressure, threaten legal actions, or refuse to extend credit terms, it may be time to consider SCARP. The moratorium period provided by SCARP offers temporary relief from creditor actions, giving the company time to restructure its debts.

Viability and Survival Prospects: SCARP is suitable for companies that still have a viable business model and a reasonable prospect of survival. If the directors believe that the company can recover with a structured debt restructuring plan, SCARP can provide the necessary framework to facilitate this.

Cost Considerations: For small and micro companies, traditional examinership may be too costly and complex. SCARP offers a more affordable and streamlined alternative, making it a practical choice for companies with limited resources.

Desire to Preserve Business and Jobs: If the goal is to preserve the business and save jobs, SCARP can be an effective tool. It allows the company to continue trading while restructuring its debts, thereby maintaining operations and employment.

Negotiating with Creditors: SCARP encourages a collaborative approach with creditors. If the company believes it can reach a mutually beneficial agreement with its creditors through negotiation, SCARP provides a formal structure to facilitate these discussions.

 

In conclusion, the Irish Small Companies Administrative Rescue Process (SCARP) is a vital lifeline for small and micro companies facing financial difficulties in Ireland. By offering a cost-effective, efficient, and collaborative framework for debt restructuring, SCARP helps companies avoid liquidation and continue trading. Companies should consider availing of SCARP at the early signs of financial distress, when facing creditor pressure, and when there is a viable path to recovery. With its potential to preserve businesses and jobs, SCARP is an essential tool for supporting the resilience and continuity of small enterprises in Ireland.

As always, consult your accountant/tax adviser.

References – Link 1, Link 2

Survey shows one third of SMEs would close within 6 months without funding

Just over a third of small and medium sized enterprises (SMEs) here say they would go out of business within six months if they did not get additional funding, a new survey has found.

The survey of 476 businesses was carried out in April and May by Amárach on behalf of the Small Firms Association, with 57% of the sample size employing less than ten people and 43% employing between 10 and 50.

Rising business costs, labour costs and retraining costs were cited as the main challenges facing businesses.

Eight out of every ten firms said that they have experienced an increase in business costs over the past year, with those costs rising by 16.6% on average.

When asked about the Government’s Increased Cost of Business grant, 55% said they had availed of it, 20% said they did not qualify, 15% said they have no need for it at the moment and 10% said they did not know enough about it.

Read more here.

See more news & updates here.

Important update for Bank of Ireland app users

Bank of Ireland mobile banking customers with older phones have less than two weeks to fork out hundreds of euro on a new device because the bank will stop issuing security updates for older operating systems by the end of the month.

Users of the banking app received a push notification on Tuesday that read: “Your BOI app will not be supported on this device after March 31 unless you update to Android 11 or higher.”

Customers with iPhones and iPads will need at least an iOS (Apple) version 15 operating system, which was only released less than three years ago. Version 11 of Android, the open-source operating system mainly developed by Google, was released under four years ago.

A notice published on the BOI website on March 7 said its mobile banking app will not work for customers who do not update their device by March 31.

Device manufacturers regularly update the software they use. When they do, older operating systems are discontinued, and older software that’s become outdated is no longer supported, the website said.

A spokesperson said: “If customers don’t update their device’s operating system, they will no longer receive BOI app updates from the 31st March.

“That does not mean that the app will not work in the short-term, but over time it will not work for customers as we add/update functionality. Customers should regularly update to the latest operating system so their device is not at risk from potential vulnerabilities.

“The operating systems that are being removed from support shortly have not been supported by either Apple or Google for more than a year, so they have not received any updates to address new vulnerabilities in the operating system in over 12 months.”

Customers with Huawei phones will also be unable to access the BOI mobile app from the end of the month, though they can still access online banking from a desktop or laptop if they order a physical security key from the bank.

Chinese electronics giant Huawei was prevented from using Google apps such as the Google Play store by the US in 2019, when then-president Donald Trump issued an executive order that effectively banned the use of telecommunications equipment from foreign firms deemed a national security risk.

The BOI spokesperson said its app “is only available via the Apple and Google Store. The US brought in some changes a number of years ago preventing Huawei from accessing the Android store. As a result, some Huawei customers have been unable to get updates. Up to that, the app was available to Huawei customers and many of those currently have access to the older version of BOI’s app.”

Read more here.

 

Revenue warns businesses over upcoming warehoused debt deadline

Revenue has written to thousands of business owners, warning them that they have just weeks left to finalise a long-term agreement for the repayment of their Covid-era warehoused debt or risk paying onerous interest rates on the balance.

Where businesses do not engage, warehoused debt will be subject to “immediate collection” after May 1 and “possible enforcement”, with the standard interest rates of between 8pc and 10pc then applying to all debt owed.

The Revenue has insisted it will be “pragmatic and flexible” in reaching payment resolutions with debtors.

Background

The debt warehousing scheme was introduced in 2020 during the pandemic in an effort to prevent businesses from collapsing during the crisis.

The scheme applied to Vat debts, payments due under PAYE, some self-assessed income tax and overpayments made to businesses under wage support schemes.

Businesses only have until May 1 to engage with the Revenue Commissioners to address their outstanding debt under the scheme. Ideally, they need to engage weeks before the deadline.

They’re currently paying no interest on the debt.

In early February, Finance Minister Michael McGrath announced that the planned 3pc interest rate on warehoused debt would be reduced to zero and Revenue undertook to show significant flexibility in arrangements to repay the debt.

he latest numbers show that 56,700 taxpayers have warehoused debt. Of those, 46pc owe less than €500.

And 83pc of the total €1.7bn in the warehouse scheme is owed by just over 5,000 taxpayers.

Taxpayers with less than €500 in the warehouse scheme are not eligible for phased repayment arrangements and must repay the debt in coming weeks. They can offset the debt owned against refunds due to them from Revenue after May 1.

By last November, there was €88m of warehoused debt that had been written off as uncollectible by the Revenue Commissioners.

The warehouse and retail sector had €28.8m in debts that won’t be collected, while the construction sector had €15m.

The debt has been deemed uncollectible due to factors including liquidation, examinership, cessation of trading and bankruptcy.

At the end of September last year, there were 11,816 businesses and individuals with warehoused debts totalling €312m that had their warehouse status revoked due to persistent non-compliance with the scheme’s conditions.

Application Process

Collector General Joseph Howley advised businesses that they should start the application process on the Revenue Online Service well in advance of May 1, 2024 to allow time to mutually agree the optimal payment plan to suit your individual circumstances.

Where non-compliance is properly addressed and current taxes brought up to date, the warehouse status could be reinstated.

Read more here.

Irish firms see gender pay gap narrow slightly

The gender pay gap among larger Irish firms narrowed slightly last year, according to analysis from PwC Ireland.

Companies with 250 or more employees are obligated to report their gender pay gap each year, with 550 firms submitting details for 2023.

There was an average pay gap of 11.2% last year, compared to an average gap of 12.6% in 2022.

Despite the improvement the figure compares unfavourably to the national pay gap of 9.6%, as reported by the Central Statistics Office for 2022.

However it is better than the most recent figure for firms across the European Union, which stood at 12.7% in 2021 according to Eurostat.

Read more here.