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SCARP Update: More Irish Companies Now Qualify

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A recent PwC report found that there has been a slight rise in companies availing of the Small Company Administrative Rescue Process (“SCARP”).

SCARP made up 6% of corporate insolvencies in Q2 2024, up from 3% in the previous quarter.

However, overall, the numbers availing of this insolvency option remain low, which is notable given that insolvencies generally are increasing.

Insolvency Trends

In terms of latest insolvency trends, the PwC Restructuring Update Q3 2024 reports that:

  • Insolvencies in the Republic of Ireland are up 35% for the first nine months, up to the end of September 2024.
  • Liquidation remains the most common form of insolvency, accounting for more than 84% of all insolvencies so far in 2024.
  • Almost all (99%) of liquidations involved SMEs.

SCARP Financial Thresholds

The financial thresholds for SCARP were raised earlier this year, making it a viable restructuring option for a greater number of companies in Ireland.

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.

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 have been 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 further information on SCARP or any Insolvency matter, please contact Michael Lavelle, Managing Partner or Dermot McClean, Senior Associate in our Restructuring & Insolvency Team.