Crowe Ireland has noted a significant number of distressed companies seeking advice as to whether the Small Company Administrative Rescue Process (Scarp) could be used to reduce their liabilities and resize their balance sheet, so the restructured operation can become a going concern again.

“We adopt an approach where we will quickly establish from consultation with Revenue whether it will participate in the Scarp, which writes down a significant portion of the Revenue liabilities, or whether Revenue wishes to opt out,” Declan Hanly, director of corporate restructuring at the firm, explains.

“We find that if Revenue indicates that it will not be part of the process, company directors and shareholders quickly decide that liquidation should be commenced, and we move to act as company nominee for appointment as liquidator in the creditors’ voluntary liquidation.

“For companies where parts of the operation are identified as viable concerns while researching their suitability for a Scarp, we find that the directors and their investors may bid for the assets and look to orchestrate a seamless takeover of the viable division.”

There is a specific provision under the Companies Acts that the sale of assets to connected parties should be a notifiable transaction to the creditors of the company and as liquidator Crowe Ireland would conclude this process while helping preserve the value of the trade being sold.

Hanly believes that Scarp is “a solid and much-needed tool” that lowers the barriers to restructuring for SMEs.

“Many SMEs are carrying the burden of historic liabilities from the COVID-19 pandemic, which at best are stifling businesses’ ability to grow and at worst are causing cashflow and solvency issues for companies,” he says.

“Scarp offers a faster, more affordable alternative to examinership, giving viable businesses a realistic path to restructuring.”

Increased awareness of the process will be key to its broader success, as will continued creditors’ engagement, Hanly adds, noting that Crowe offers a free initial consultation to directors who wish to explore whether their company may be a suitable candidate for rescue using the Scarp process.

“We are often told by solicitors and accountants that their clients feel less stressed and in a better place to deal with their companies’ financial difficulties following the meeting with the insolvency practitioner.

“In discussing challenged businesses with their directors, we find that liquidation and closing down is never an inevitable outcome, and acting earlier always improves the options they have.”

Photo: Declan Hanly, director of corporate restructuring, Crowe Ireland