How to find the right solution in a tight spot

David O'Connor, Corporate Recovery Partner, recently featured on the Business Post. In the article, How to find the right solution in a tight spot, David discusses how the Small Company Administrative Rescue Process (SCARP) works for SMEs. He also emphasises the need for companies to engage with advisors sooner rather than later, regardless of what solution they will take.

Corporate restructuring and insolvency are part and parcel of business. And while the global events of the past two years may have resulted in a decline in the number of companies seeking advice on restructuring their business, David O’Connor of BDO says these figures are expected to rise as a result of state supports being stopped – and there are a number of ways in which he and his colleagues in the industry can help.

“Examinership has been around since 1990, but for a number of years many companies found it to be an expensive process and it has been identified that there wasn’t an alternative option for smaller companies,” he said. “So, for some time, various parties have been canvassing to put something new in place and following the onset of the pandemic, there was a need to get another option out there quickly – so Scarp came into effect.”

Scarp, the Small Company Administrative Rescue Process, is likely to be beneficial to many SMEs across Ireland, which according to the lead Restructuring partner with BDO, are in the majority. And while there are still a few issues with the process which may need tweaking, he is sure these will be resolved in time.

“The majority of companies in Ireland fall into the SME category,” he said. “The concept of Scarp was pulled together by a number of parties such as the Company Law Review Group, the various accounting bodies, the Law Society and various business organisations with the sole purpose of devising a restructuring process that would work best for SMEs.

“A solution was agreed on and while it is certainly user friendly, I would imagine that over time it will be tweaked and amended to make it even more so – a bit like the situation was with examinership when it was first introduced.

“There is a specific process involved and its purpose is to examine whether or not a business is viable. It is likely that some companies had hoped to use Scarp as a means of writing off revenue debt, particularly when the government allowed for tax warehousing during Covid.

“To avoid this, the Revenue have not been automatically included in the Scarp process, rather, the Revenue have to elect to participate.”

O’Connor said it was most likely set up that way so that companies which might have had a history of defaulting on their Revenue obligations prior to Covid were not automatically entitled to have these debts written off by entering into the Scarp process.

“It is a fairly fast process in comparison to examinership, which requires the circulation of a rescue plan to all creditors within 42 days and if the rescue plan is approved, it is to be filed with the courts within 49 days. I would advise anyone who is looking at going down the Scarp route to make sure they are well prepared as there is a certain level of pre-planning involved – it’s not just a case of appointing an adviser and having it all done in a few days.

“Companies thinking of going down this route will need to liaise with stakeholders such as their bank, the Revenue, creditors and landlords to let them know that the process is being explored as a means of saving the business and their support would be appreciated.”

But while Scarp is likely to be beneficial to companies shown to be viable, there are many other options available to firms seeking advice and David O’Connor is more than happy to advise.

“I work with companies who are underperforming to try and establish restructuring plans or assist management in finding out what can be done to rescue a company,” he said. “Or if nothing can be done, I can help them to manage the closure of business in an orderly fashion. Basically my role is to help with either a reboot or a wind down.

“In each of these situations, both early and constant engagement is vital, and I would encourage anyone who comes to us for advice to reach out to concerned parties as soon as possible before going down the route of a formal process.

“But there are a lot of options available, and I recommend companies to go to an adviser, like ourselves here at BDO, to find the best solution for their company. This could be a formal restructuring route, examinership, Scarp or, if the business has come to the end of its life and needs to be put into liquidation, then this can also be dealt with to ensure that it goes as smoothly as possible.”

Regardless of which route is the best for individual companies, there is expert help available and options to suit each situation. O’Connor says the most important thing is to take action sooner rather than later.

“My advice to any company would be to speak to an adviser who has expertise in dealing with many situations,” he said. “A proper assessment will be done, and all the options looked at. Some companies may feel as though they can look after the situation themselves, but when it comes to dealing with banks and the Revenue, it is advisable to seek outside help rather than trying to go it alone as we are experts in knowing what is required to achieve the best outcome all round.”

Content adapted from the Business Post.

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