February 19, 2024
Sodium Valproate (Epilim) Inquiry
In November 2020, the Minister for Health, Mr Stephen Donnelly, announced that an inquiry would take place into the historical licensing and use of the epilepsy drug Sodium Valproate (also...
In January 2021, I wrote about the possibility of increased insolvencies across Irish businesses when the Government’s covid-related subsidies cease. Read the piece here.
I spoke on This Week on RTE Radio 1 about the same topic in the Summer of 2021. I took the view then that the pandemic-induced “zombie economy” would likely result in mass business failures when it finally ended. I did not know at the time that Government subsidies, including the Employment Wage Subsidy Scheme (EWSS) would continue for another twelve months and have only just come to an end.
In fact, as most businesses were supported by the Government, they did not have to make the decision to go into liquidation, receivership or examinership as they were able to pay their debts and “warehouse” Revenue debt. The “limbo” in which insolvent, or potentially insolvent, businesses found themselves is now coming to an end with the end of pandemic support and subsidies.
I was interested to see a recent report by PwC which predicts “we may be seeing the first signs of businesses struggling in the post-pandemic environment without the pandemic supports and subsidies”. You can read the full PwC report here.
With Government “life support” coming to an end, companies in difficulty now must look at the alternatives available to them. The threats to companies are now immediate. They are looking at rising inflation, a shortage of employees, rising interest rates and increased costs. In certain sectors, particularly leisure-related businesses, this combination of problems makes a certain level of insolvencies seem inevitable.
The rate of UK liquidations where Government support was withdrawn earlier than it was in Ireland is four times higher than the Irish rate. This is more likely due to the continuation of Government support rather than an indication that the Irish economy is outperforming the British economy.
It is now time for directors to realistically assess where they are at and how best to get out of the difficulties in front of them. Many businesses will have difficulty discharging warehoused debt or arrears of rent if future profitability cannot be achieved.
The traditional options of liquidation, receivership and examinership remain available. However, the pandemic has also introduced another insolvency procedure which may well become the preferred route for many companies trying to extract themselves from pandemic-related debt.
The Companies (Rescue Process for Small and Micro Companies) Act 2021 (the “Act”) was passed last year and while it has not been extensively used to date, if its use is supported by Government organisations including the Revenue Commissioners, it is likely to provide a lifeline which could result in the survival of many companies that, before the introduction of SCARP, would not have been able to continue.
The SCARP process applies where:
The greatest advantage of SCARP is its simplicity. Examinerships do not suit SME companies. The costs involved are too high in many cases. Independent accountants’ reports are required, examiners have a considerable amount of work to do to complete successful examinerships and court applications are necessary. SCARP offers a similar protection to the protection given in examinerships.
With SCARP, there are two significant advantages over other insolvency procedures: speed and costs.
SCARP lasts for forty-two days and up to forty-nine days. This is only a matter of weeks, seven weeks as a maximum.
Costs are also significantly reduced compared to both examinerships and liquidations as the process adviser in a SCARP process is only in place for a limited amount of time. No court applications are necessary and no independent accountants’ reports are required. There are significant cost savings compared to examinerships and, as a SCARP process is condensed in time, there should also be cost savings compared to liquidations.
SCARP is in its infancy. There are only approximately five SCARPs completed so far but it is beginning to look like it may provide one of the solutions to allow businesses recover from the shock of the pandemic and allow such businesses to return to a viable future.
There will be teething problems. There will be creditors who will challenge the process, landlords who will refuse to repudiate leases and SCARP processes which will fail for a variety of reasons, but SCARP has created a solution which companies should look at and which I expect many will avail of.
About the Author: Michael Lavelle, Managing Partner.
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