Debt warehousing was one of the government’s flagship financial support schemes for businesses during the COVID-19 pandemic. It allowed businesses that were experiencing cash flow and trading difficulties to defer tax payments until they were in a stronger financial position.
For many Irish businesses, it was a vital intervention that gave them the financial breathing space to survive the pandemic. The scheme offered participants favourable terms, with no interest charged on tax debts until 1st January 2023. The hope was that by that time, most businesses would have recovered sufficiently to have already repaid what they owed.
Most did manage to repay within that timeframe. But not all. As of May 2023, 61,278 businesses still owed a combined €2bn in warehoused tax debts. While that represents just 7% of the total debt accrued, the biggest challenge the authorities face is the fact that the bulk of the remaining debt – some €1.7bn – is owed by just 10% of the businesses that still have outstanding debts.
With interest now repayable at a rate of 3%, and beneficiaries facing a deadline of 1st May 2024 to agree a legally-binding Phased Payment Arrangement, the prospect of some of the largest debtors defaulting now looms large over the scheme.
Indeed, the legal wrangles have already started. And Revenue has already found itself pushed onto the back foot by a significant High Court ruling.
Not a preferential creditor
Usually when a company enters insolvency proceedings and its debts include taxes, Revenue enjoys the status of a preferential or super-preferential creditor, with the power to block or veto proposals for restructuring, recovery or divestment of assets.
Yet that position has been called into question in relation to warehoused debt. It all centres on a case recently heard at the High Court concerning Newry-based office fit-out firm Mac Interiors. The court was being asked to approve a Scheme of Arrangement that would allow the company to continue trading. All creditors agreed to the proposals – except Revenue, which is owed €13m by the firm in warehoused tax debt.
That would usually have been the end of the matter – Revenue’s opposition enough to kick the plans into the long turf never to resurface. But after it was established that warehoused debts have the status of an unsecured loan, it was ruled that Revenue’s usual preferential creditor status could no longer apply.
Not impressed by this loss of status, Revenue Commissioners fought back tooth and nail, trying to block proposals on a legal technicality.
But the issue for Revenue doesn’t appear to be winning or losing this particular case, or any fears that it could lose the €13m it is owed by Mac Interiors. An objective view of things would suggest that, should the proposed rescue package work, there is every chance of a suitable Phased Payment Arrangement being agreed.
What’s really at stake for Revenue is the loss of power it now faces in future insolvency cases involving some of the biggest remaining warehouse scheme debtors. And in particular, the prospect of firms being liquidated with unrecoverable tax debts, and not having preferential access to their remaining assets.