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Many Irish businesses face the challenge of meeting warehoused debt. One option available is to address the debt via the Small Company Administrative Rescue Process (“SCARP”).
During the Covid-19 pandemic, a lot of Irish companies took advantage of Government schemes, to include the Employment Wage Subsidy Scheme (“EWSS”), the Covid Restrictions Support Scheme (“CRSS”) and Debt Warehousing. PAYE, PRSI, USC, EWSS and CRSS overpayments were all warehoused.
What is Debt Warehousing?
The Debt Warehousing Scheme was brought into effect by the Revenue Commissioners (“Revenue”) in order to support and assist businesses experiencing cashflow and trading difficulties due to the COVID-19 pandemic. This allowed businesses to defer paying tax liabilities to a later period, when the business may be in a better place financially to settle the debt.
What is the Interest Rate?
Warehoused debts had a 0% interest rate initially, followed by a 3% interest period from 1 May 2023.
Revenue recently published headline figures for 2023 and this included confirmation that there is still €1.75 billion worth of tax debt in the debt warehouse.
Phased Payment Arrangement – 1 May 2024 Deadline
Individuals and companies with this warehoused debt have until 1 May 2024 to agree a Phased Payment Arrangement with Revenue. It is likely they will be expected to pay a percentage of their debt up front and agree to pay the balance by instalment.
Speaking recently about the action now required by businesses that have availed of the warehousing scheme, Revenue Commissioner, Ruth Kennedy advised:
“Businesses with debt in the warehouse should start making realistic plans for dealing with this debt based on their individual circumstances. We are ready to work with businesses so that they can secure the viability of their business into the future while still meeting the requirements of the debt warehousing scheme, including the requirement that current liabilities are filed and paid on time.”
Many small, struggling Irish businesses, especially those with other debt, may not be able to pay this warehoused debt and it may seem certain that insolvency would follow.
Small Company Administrative Rescue Process
The Small Company Administrative Rescue Process (“SCARP”) is an option for these businesses. The process is similar to examinership, however, SCARP is quicker, more cost-effective and does not require the close oversight of the Court.
SCARP is aimed at companies that are likely to become insolvent but have a reasonable chance of survival.
For further details on the advantages of SCARP, please see our prior article Post-pandemic Insolvencies Coming to the Surface.
The company’s board can appoint a Process Adviser (usually an Accountant) to advise on whether the company has a reasonable prospect of survival and then to prepare a Rescue Plan. The rescue plan will usually require fresh investment into the company and will provide for a write down of the company’s debt.
The rescue plan is approved by creditors when approved by 60% in number, representing a majority in value of at least one class of impaired creditors. The approved rescue plan can provide for the write-down of liabilities across all classes of creditors.
A creditor or member has 21 days to object to the rescue plan. If an objection is raised, the Process Advisor must seek the Court’s approval of the rescue plan.
While creditors (to include Revenue) will see debt written off as part of these rescue plans, the Process Adviser can generally sell it to them on the basis that, it is a better outcome than liquidation, the plan will see the company survive, the creditors will still have an entity to do business with into the future, and crucially for Revenue, jobs will be saved.
The Minister for Enterprise, Trade and Employment Mr. Simon Coveney recently said the process of unwinding the debt needs to be done in a way that is supportive of business, which is welcome. “My department obviously has to work within Government to make sure that as Revenue do what they need to do, and they’re very efficient at doing that, that we do it in a way that’s business friendly and enterprise supporting,” he said.
SCARP is still quite new. Lavelle Partners have acted for both Process Advisers and creditors and we have also advised a number of companies going through the SCARP process. We have seen that Revenue are willing to engage with the process and will agree to warehoused debt being written off.
Critically, companies seeking a write down of warehoused debt via the SCARP process, must ensure they meet Revenue’s strict requirement that current tax liabilities are filed and paid on time.
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