Ireland: Revenue Warehoused Debt Scheme Update

Why should I read this?

The Revenue Warehoused Debt Scheme (the Scheme) has provided temporary relief for businesses since its introduction in May 2020. The Scheme was a pivotal measure to support businesses facing financial pressure due to the COVID-19 pandemic by allowing for the deferral of certain tax liabilities and providing much-needed breathing space for businesses grappling with cash-flow and trading difficulties. It afforded businesses a period during which no interest was charged, followed by a reduced interest rate period, easing the burden on businesses as they worked towards financial recovery.

When is the deadline?

The Scheme's extension - announced in October 2022 - lengthened the deadline for repayment of warehoused debt to 1 May 2024. On this date, businesses are expected to either repay their warehoused debt in full or engage with Revenue to agree on a payment arrangement to repay the debt over an agreed period. While the extension provided a welcomed temporary reprieve for businesses grappling with cash-flow challenges, it may well prove to be a double-edged sword. On the one hand, it has offered additional time for businesses to stabilise and arrange their finances to address the warehoused debt. On the other hand, the looming deadline is expected to increase the pressure on companies already facing economic headwinds such as rising interest rates and increased labour and supply costs.

Any businesses that have failed to make the most of the deadline extension by adequately planning for the repayment of warehoused debt could find themselves in breach of loan arrangements, potentially triggering enforcement provisions. It is predicted that, once the deadline passes, there is likely to be a corresponding spike in insolvency cases. In fact, insolvencies are expected to reach close to 1,000 in 2024, up from 717 in 2023.
What options are there if a business is facing insolvency?
To ensure solvency and compliance with fiscal responsibilities, any affected business should take immediate steps to:-

• reassess financial strategies;
• engage with Revenue as early as possible; and
• consider renegotiating terms with creditors where necessary.

In addition, a business may consider the Small Company Administrative Rescue Process (SCARP) - a legal mechanism introduced to assist small and micro companies facing insolvency.

What is SCARP?

SCARP is often referred to as "examinership lite" due to its streamlined approach, which is less complex and more cost-effective than traditional examinership. The process is designed to enable eligible companies to restructure their debts without court intervention, aiming to help them continue operations and avoid closure. Examinership, while offering protection from debt enforcement, involves a more complex and costly process with multiple court applications. SCARP allows companies to negotiate with creditors and prepare a rescue plan, which can include restructuring of debts and repudiation of onerous leases. This can be done out of court.

Despite the benefits of SCARP, there is a noticeable lack of engagement with the process among businesses, potentially due to lack of awareness or perceived complexity. Increasing awareness and understanding of SCARP could encourage more businesses to utilize this option for financial restructuring and rescue.

Further Reading on SCARP

Ireland’s New Restructuring Process for SME’s – The Small Companies Administrative Rescue Process (“SCARP”)

Special thanks to Melanie Ardiff for contributing to this briefing.