Looking at an alternative to traditional insolvency mechanisms

A recent PWC report highlighted a number of concerning developments in relation to Irish Businesses such as:
1. There have been 18% more business failures in the first half of 2022 compared to
2021.
2. There have been 17% more insolvencies per 10,000 companies in quarter 2 in 2022
than in the corresponding period in 2021.
3. There have been 58% in SME Liquidations in quarter 2 in 2022 compared to quarter 1
2022.

Interestingly there are four times more liquidations per 10,000 companies in the UK compared to Ireland. This may be directly related to the fact that the subsidies given to businesses in the UK were withdrawn at a much earlier stage than in Ireland. It is fair to say that insolvencies are still at record low levels, but Irish businesses are having to contend with significant challenges such as:
1. The easing out of the EWSS.
2. Having to discharge warehoused Revenue debt.
3. The onset of high inflation.
4. The onset of high energy costs.
5. Increasing interest rates.

In May 2022 over 90,000 businesses were still availing of warehousing schemes with €2.96billion in tax debt still owing i.e. an average of €32,000 per business. In this context it is important that businesses focus on monitoring cashflow, assessing,working capital, assessing funding resources and planning for the future.
We are all aware of the traditional insolvency options such as receivership, liquidation and examinership. A new option which was introduced last year but to date rarely used known as SCARP (the small company administrative rescue procedure). This is a scheme which is similar to examinership but does not involve many of the elements of examinership which created enormous costs for companies entering into examinership. SCARP applies to companies that have a turnover of less than €12million, have a balance sheet of less than €6million and have less than 50 employees.
Two big advantages of SCARP are speed and costs. The scheme lasts for 42 days, there is no need for a court application and there is no requirement for an independent’s accountant report.

SCARP may not be the panacea for all difficulties encountered by companies who are seeking protection in circumstances where they run into financial difficulties. For example there may
be issues with landlords repudiating leases and creditors challenging the process. However, this scheme is one that has significant merit particularly given the hugely decreased
costs compared to examinership.

For further information on this or any other company law matter please do not hesitate to contact Brendan Dillon or one of the other Solicitors in the firm on 01-2960666.