Last August, Patrick Garry was deep in survival mode. 

His company, Smart Points, had overextended itself, investing heavily in an outbound sales push that had failed to generate the desired return. It had left the company with a hefty interest bill on loans, but little else. A key client had changed strategy, ending €15,000 in monthly revenue for his business.

Garry founded the company in 2012 with his business partner Conor O’Toole. The holding company was called Smart Points, but most people knew it as Loylap, its main trading brand.

It originally offered app-based loyalty cards for retailers but expanded its offer to include gift cards, online ordering software, self-service kiosks and promotional in-app marketing. It also created a sister brand, Facilipay, which sold the same technology to workplaces, particularly schools and hospitals.

Underneath, Garry knew he had a successful business. Along with O’Toole, he had nursed it through Covid, and it had built all of its own technology. Some 80 per cent of its revenues were coming from overseas.

But it was bogged down dealing with debt. By Garry’s own admission, the company had made a habit of “making it work by the skin of its teeth”. Now that skin had peeled away.

He had a choice: shut the company down or try for a comeback.

He opted for the latter. He reached out to Tom Murray, a partner with the insolvency specialist Friel Stafford. Stafford believed that the company had a bright future if it would clean its slate by restructuring its debt and raising fresh investment. Due to its size, the company was a candidate for the Small Companies Administrative Rescue Process to restructure the business. A form of examinership for small companies, Scarp offered Smart Points protection from its creditors and some crucial breathing space. 

Garry thought he had an investor lined up prior to the process beginning. However, circumstances changed and the investor pulled out. So, he reached out to his network. With the clock ticking down, he lined up with DataOp and ComOp, the multi-family office led by several former executives of the fund management firm Waystone. 

“They took a quick look. They spoke to some people and then they made a decision that they would make the investment. That allowed us to pay off the requirements to the creditors and gave us a little bit of change left over,” Garry told me when I sat down with him last week. 

With new investors, Smart Points exited Scarp, and Garry is now cautiously optimistic about its future potential. So too is Derek Delaney of DataOp.

“We are blown away by the resilience and drive of Paddy, Conor and the team who have steered their business through a tough Covid, tough debt process and are now close to profitable and international. It is a tremendous success story,” said Delaney, whose fund has deployed in the region of €30 million in nine companies since it was established in mid-2023.

This is exactly what Scarp was set up to do – to help small companies restructure their business without the cost or burden of a formal examinership process. 

Yet, few companies are availing of it. 

The number of Scarps initiated in 2024 was just 30, compared to 33 in 2023, according to data from PwC, which tracks insolvency trends in Ireland. 

So, why is the number so low?

“If the viability of a business isn’t there, liquidation is the only option. You can clean up that balance sheet. But if the business cannot make money, that’s the issue,” PwC’s Ken Tyrrell told me when I sat down with him recently. He also pointed to the fact that Revenue can exclude itself from the Scarp process. “That’s a big issue. If you’re a practitioner, and you can’t control all the creditors in the process, it’s difficult,” he said.

The way Tom Murray at Friel Stafford sees it, “if there is a business that can be saved, is worth saving and there is an appetite to save it – the Scarp is a process that works”.  

“It is all about understanding the business and the characteristics of it and knowing whether it matches the characteristics of a successful Scarp,” said Murray, who shepherded Smart Points through the process.

He also pointed out the Revenue veto. “They are very supportive of businesses who have been tax compliant, including going into PPA (phased payment arrangement) over warehousing,” he said. “However, many companies who fail have not been compliant with Revenue and Scarp does not suit them.”

In terms of cost, he said that it is more cost-effective than examinership, but still relatively more expensive than a liquidation for micro and very small businesses.

“Scarp generally, although not in all cases, requires some investment,” Murray said. “Promoters struggle with raising equity to fund a Scarp. It is easier to fund a new entity without legacy debt.”

For Graham Kenny, a partner with the law firm Eversheds Sutherland, it is a matter of awareness. Simply put, he said not enough people know about the benefits of Scarp.

“It is a little-known fact that Microsoft invented its own tablet a decade before Apple. It was a great idea that never reached its full audience. In a similar manner, the novelty and complexity of Scarp has combined to inhibit its widespread uptake by small businesses,” said Kenny, who has advised a host of businesses on restructuring. 

“A statistical analysis shows that while insolvencies rise at a somewhat alarming rate, Scarp’s implementation is perversely declining. Scarp has simply not reached its full target audience or potential. If Scarp is to become more than just a great idea, its message needs to filter down to every struggling business in every local town across the country.”

Colm Dolan, a restructuring specialist with Grant Thornton, said that last year, in an effort to increase uptake two of the three criteria were increased – the turnover threshold was increased from €12 million to €15 million and the balance sheet threshold was increased from €6 million to €7.5 million.

“However, prior to this change Scarp was already available to 98 per cent of Irish companies so this increase made minimal difference,” he said.

However, Dolan said this did not address two key issues – cost and Revenue.

“Although Scarp is more cost-effective and quicker than examinership, it is still a costly process as it requires payment of professional fees, a dividend to creditors and investment in working capital and/or capital expenditure. This type of investment is not always readily available to smaller companies often making it difficult for them to utilise the process,” he said.

“The position of Revenue and how they will approach a Scarp is still very unclear. Revenue can opt out of the process and, effectively, control whether or not the process will be a success as they are quite often a significant, or the largest, creditor.”

Greg Cooney, legal director with the law firm DLA Piper, said a contributing factor to the low take-up was “a lack of awareness of the process and how it works in practice”. 

“For example, there is a perception that the utility of Scarp is hampered by the ability of Revenue to opt-out. However, available statistics suggest that often, Revenue will not avail of this option,” he said. “More awareness about the process in the small and micro businesses sphere should drive better Scarp participation going forward”.

Patrick Garry and Smart Points is a prime example of the process working. Hopefully, more will be able to follow this path if it works for them.

Elsewhere last week…

As Michael Lowry’s influence in Government circles grows, a new High Court judgment sheds light on the legal back-and-forth between Persona and the businessman Denis O’Brien over the discovery of documents relating to the Moriarty Tribunal. I unpicked the details.

Last week, Rachel Reeves, the UK Chancellor of the Exchequer, delivered a wide-ranging defence of her party’s time in power and unveiled a series of investments and initiatives that spanned everything from building Europe’s Silicon Valley to reforming immigration. She concluded on what had become a very badly kept secret over the past week or so: Labour was backing the construction of a third runway at Heathrow Airport. But can the UK government deliver the project, and what can the Irish government learn from the plan? Michael had insightful analysis. 

In 2022, two of Ireland’s best-known entrepreneurs, Barry English and Tommy Kelly, hired an operating company to run their private jet. Now they are engaged in a Commercial Court dispute over the deal. Francesca had the story.

Large bonuses, a private equity deal and a land sale are among the root causes of the row at Highfield Healthcare, which provides mental health services. Francesca reported on how a family shareholder dispute broke out at a Dublin health provider with a 200-year history.