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Introduction
A recent Deloitte report found that only 3.5% of insolvent companies went through the Small Company Administrative Rescue Process (“SCARP”) in 2024, which amounts to just 30 of the 875 total, compared to 33 in 2023.
SCARP was introduced by the Companies (Rescue Process for Small and Micro Companies) Act 2021. The process is designed to offer a cost-effective restructuring solution for viable but insolvent small and micro companies, as defined in the Companies Act. SMEs in difficulty should be considering this option.
SCARP Financial Thresholds
The financial thresholds for SCARP were raised in 2024, making it a viable restructuring option for a greater number of companies in Ireland.
Originally, SCARP was available to companies that met two of the following criteria:
No more than 50 employees
A turnover not exceeding €12 million
A balance sheet total not exceeding €6 million, with certain exceptions
Increased SCARP Financial Thresholds
A recent update to the legislation expands this criteria to make the process available to a larger number of Irish companies. As of July 1st, 2024, the financial thresholds were increased to:
A turnover not exceeding €15 million
A balance sheet total not exceeding €7.5 million
This adjustment broadens the pool of companies that can now consider SCARP as a potential option. The change applies to the most recent financial year starting on or after January 1, 2023.
Market Implications
The change in legislation is a positive development and it is advantageous for companies that have seen an increase in revenue, profits and costs, and as such, may have previously fallen outside the eligibility criteria for SCARP.
The broadening of the scope of SCARP also indicates that the State bodies want SMEs to avail of this option. Most companies availing of SCARP have significant tax debt, but in general, the Revenue Commissioners appear willing to engage with the process and agree significant write downs of debt.
Conclusion
It is clear that insolvencies are on the rise, and SMEs facing financial distress should strongly consider looking into SCARP with a view to potentially avoiding liquidation.
Further Information
For further details on the advantages of SCARP, please see our prior articles Post-pandemic Insolvencies Coming to the Surface and Small Company Administrative Rescue Process: A Solution for Warehoused Debt?
For expert legal advice on SCARP or any Insolvency matter, please contact Michael Lavelle, Managing Partner or Dermot McClean, Senior Associate in our Restructuring & Insolvency Team.