Employers will not be deemed insolvent if they avail of the Covid-19 Temporary Wage Subsidy Scheme
The Emergency Measures in the Public Interest (Covid-19) Act 2020 set out the main provision of the Government’s temporary wage subsidy scheme.
In order for an employer to qualify for the subsidy scheme, they must submit a declaration to Revenue that all of the following conditions are met:
- That the business is experiencing significant negative economic disruption due to Covid-19,
- That they can demonstrate, to the satisfaction of Revenue, that the negative disruption is leading to:
- A minimum of 25% decline in actual or expected turnover, and
- An inability to pay normal wages and outgoings and,
- Other circumstances as set out in published Revenue Guidelines.
The ‘inability to pay normal wages and outgoings’ criterion raised concerns as to whether it was virtually the same as an admission that the business was trading while insolvent. This further raised fears that any company directors that availed of the scheme could be potentially exposed to a claim for fraudulent or reckless trading.
The Revenue Commissioners have recently addressed these concerns and clarified that employers will not be deemed insolvent if they avail of the temporary wage subsidy scheme. Therefore, availing of the subsidy scheme will not of itself expose a director to a claim for reckless or fraudulent trading.
In Revenue’s opinion the declaration by the employer is not a declaration of insolvency. The declaration is a declaration which states that, based on reasonable projections, there will be, as a result of disruption to the business caused or to be caused by the Covid-19 pandemic, a decline of at least 25% in the future turnover of, or customer orders for, the business for the duration of the pandemic and that as a result the employer cannot pay normal wages and outgoings fully but nonetheless wants to retain its employees on the payroll.
In order to avoid having any future issues with the Revenue, employers that avail of the subsidy scheme, should ensure that they keep a supporting record to show the negative affect Covid-19 has had on their business.
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