SCARP and beyond: Practical solutions for hospitality businesses

The Irish hospitality sector, including restaurants, pubs and hotels, is entering one of its most challenging periods since the pandemic. While 2025 offered some seasonal relief, structural pressures remain severe. For many operators, survival will depend not on demand alone but on their ability to manage cash flow and engage early with restructuring options.

Key pressures facing the sector

Rising operating costs

Energy prices remain high, food inflation persists, and insurance premiums continue to climb. Labour costs are surging due to minimum wage increases and enhanced statutory entitlements. The introduction of auto-enrolment pensions adds further complexity and cost. Although phased in gradually, employer contributions will still place pressure on margins that are already extremely thin. Hospitality businesses, which are labour-intensive and rely heavily on part-time staff, will feel this impact acutely.

VAT relief delay

The Government has indicated that the reduced 9% VAT rate for certain hospitality activities will return in July 2026. While welcome in principle, the timing creates a serious challenge. Operators must absorb the current 13.5% rate for another seven months, during a period of rising costs and fragile demand. Businesses need to survive long enough to benefit from this relief.

Post-Christmas cash flow crunch

January and February have always been lean months for hospitality, but this year the challenge is amplified. After funding festive payroll and stocking up for the Christmas period, many operators enter the new year with quickly depleting cash reserves. When footfall drops, creditor pressure escalates just as revenue falls. Combined with higher wages and reduced access to credit, this seasonal slump is likely to trigger viability concerns for many businesses.

Legacy debt and Revenue enforcement

Warehoused Revenue debts are now falling due, and enforcement activity has intensified. While many companies entered phased payment arrangements in good faith, the monthly costs especially in the slower months will be unaffordable.  Businesses that fail to address these obligations early risk losing the flexibility to negotiate solutions.

Restructuring options

Ireland offers several statutory mechanisms to help viable businesses restructure and avoid liquidation.  Indeed, a liquidation of an insolvent company can in certain circumstances be part of a restructuring process.

• Examinership: A court-supervised process providing up to 100 days of protection from creditor action while a survival plan is developed. Suitable for medium-sized operators seeking investment and debt compromise.
• Small Company Administrative Rescue Process (SCARP): A streamlined alternative for small and micro-companies, offering many of the benefits of examinership without court involvement and at lower cost.  A SCARP is administered by an appointed accountant and involves engagement with creditors, including Revenue. Since its introduction, SCARP is now the restructuring tool of choice for companies with less than €3m in turnover. 
• Liquidation: Where a restructuring process is not viable, an orderly wind-down may be the necessary course of action. In some cases, reaching a compromise with creditors is simply unattainable, making a formal restructuring process impractical. When a company becomes insolvent or is likely to become insolvent, directors must act responsibly and take steps to protect creditors’ interests, as failure to do so can lead to personal liability. In certain circumstances, directors may have the opportunity to acquire trading assets or secure a new lease on the business premises, enabling them to establish a new business that retains some of the locational advantages of the former company.

The imperative of early action

A 13-week rolling cash flow forecast is the most important tool available. It enables management to identify pinch points, anticipate covenant issues, and present a structured plan to stakeholders. Landlords, lenders, and suppliers are more willing to negotiate when they see decisive action and financial visibility.

At Crowe, our first step when advising a company facing cash flow challenges is to work collaboratively with the directors to prepare a 13-week cash flow forecast. This exercise is highly valuable and is offered as a complimentary upfront service prior to any formal engagement. It provides us with critical insight into the company’s financial position, helps identify key obstacles, and allows us to explore potential solutions together with the directors. By doing so, we can quickly determine how we can add meaningful value in what are often complex and stressful circumstances for company leadership.

Conclusion

The next 12 months will require disciplined cash management, early intervention, and honest viability assessment. Rising employment costs, including auto-enrolment, combined with VAT relief delays and seasonal cash flow pressures, will test even the strongest operators. Formal restructuring processes such as Examinership and SCARP offer real opportunities to stabilise and protect value, but the window to act is narrowing.

If your business is experiencing financial distress or you are concerned about upcoming cash flow challenges, now is the time to act. Crowe’s experienced restructuring and insolvency team can help you assess your options, engage with stakeholders, and implement a strategy that protects your business and its future. Contact Crowe today for a confidential consultation.