COVID-19: Information for Start-Ups

As the economic impact of Covid-19 (Coronavirus) continues to deepen, start-ups are increasingly faced with unexpected challenges. We have created this guide to provide information on some of the most important issues which will affect your business during this period of uncertainty along with available supports.

1. Government Supports

It is likely that funding rounds will slow down over the next quarters and due to the closure of Universities, support from academic accelerators and incubators will stop. In response to the current business climate, the Government has recently announced a range of supports for business, many of which are administered through the Department of Business, Enterprise and Innovation (DBEI).

Financing Supports

(a) A €200m Strategic Banking Corporation of Ireland (SBCI) Working Capital scheme for eligible businesses impacted by COVID-19. Loans of up to €1.5m will be available at reduced rates, with up to the first €500,000 unsecured. Applications can be made through the SBCI website.

(b) A €200m Package for Enterprise Supports including a Rescue and Restructuring Scheme available through Enterprise Ireland for vulnerable but viable firms that need to restructure or transform their business.

(c) The maximum loan available from MicroFinance Ireland will be increased from €25,000 to €50,000 as an immediate measure to specifically deal with exceptional circumstances that micro-enterprises – (sole traders and firms with up to nine employees) - are facing. Applications can be made through the MFI website or through your local LEO.

(d) The Credit Guarantee Scheme will be available to COVID-19 impacted firms through the Pillar Banks. Loans of up to €1m will be available at terms of up to seven years.

Supports for firms experiencing trading difficulties and short-term shocks

(a) The Department of Employment Affairs and Social Protection and DBEI will provide a joint First Responder support service through the Intreo Offices and development agencies, Enterprise Ireland and IDA Ireland in each region to provide tailored supports for impacted firms, with the objective of avoiding mass lay-offs and buying time for firms to work through the short-term disruptions.

(b) Firms that need to reduce hours or days worked can avail of the DEASP Short Term Work Support by contacting their local Intreo Office.

(c) The full range of Enterprise Ireland, IDA Ireland, Local Enterprise Office and Údarás na Gaeltachta grant supports will be available to firms to help with strategies to innovate, diversify markets and supply chains and to improve competitiveness.

Local Enterprise Offices can provide vouchers to businesses to assist in preparing in the event of any business continuity issues arising.

A Finance in Focus grant of €7,200 will be available to Enterprise Ireland and Údarás na Gaeltachta clients who want to access consultancy support to undertake immediate finance reviews.

Revenue/Tax Support

The Revenue Commissioners have suspended the application of interest on businesses’ late payments of VAT for the January-February return and late payments of employers’ PAYE liabilities for February and March. It also said no debt enforcement activity would take place until further notice.

Employee Remuneration Support – Temporary Wage Subsidy Scheme

As part of measures announced by Government to provide financial support to workers affected by the COVID-19 crisis, Revenue will operate a Temporary Wage Subsidy Scheme. The scheme enables employees, whose employers are affected by the pandemic, to receive significant supports directly from their employer. The scheme is expected to last 12 weeks from 26 March 2020. Find more information here.

Key Features of the Scheme

The scheme replaces the COVID-19 Employer Refund scheme which was applicable from 15 March 2020.

(a) Phase 1 is intended to be a short, transitional phase during which employers will be refunded up to a maximum of €410 for each qualifying employee from 26 March 2020;

(b) Phase 2 which will commence no later than 20 April 2020, will be a subsidy payment where the amount employers will be refunded will be based on the employee’s average net weekly pay as follows:

  • capped at the level of 70% of previous average weekly take home pay, to a maximum of €410 per week;
  • capped at €350 for employees where the previous average net weekly pay is greater than €586 but less than €960; and
  • no subsidy will be paid where previous average weekly net take home pay exceeds €960 per week. 

Revenue guidance indicates that where the €410 Revenue payment in Phase 1 exceeds the maximum subsidy amount due in respect of that employee using the Phase 2 metrics (e.g. because it exceeds 70% the average net weekly pay for that employee) the excess is refundable by the employer to Revenue.

Employers should pay no more than the normal weekly net pay of the employee. Payment to employees should be made through the normal payroll process, with Revenue reimbursing employers within two working days.

Tax Treatment

The subsidy payments are liable to income tax on the employee, however this is not taxable in real-time through the PAYE system – rather the employee will be taxable on the subsidy amount paid to them by their employer by review at the end of the year. Employer’s PRSI will not apply to the subsidy payment and the amount applicable to top-up payments will be reduced from 11.05% to 0.5%.

Employer Eligibility

The scheme is available to employers across all sectors (excluding Public Service and Non-Commercial Semi-State Sector). To qualify for the scheme employers must be experiencing significant negative economic disruption due to COVID-19 and must make a declaration to this effect. The declaration by the employer is not a declaration of insolvency.  Revenue have stated that key indicators that an employer is experiencing significant negative economic disruption would be indicators such as a decrease or likely decrease in employer’s turnover by 25% in Q2 2020.  Another indicator is that the business is unable to meet normal wages or normal outputs.

Employee Eligibility

The employee must have been on the payroll as at 29 February 2020 and the employer must have made payroll submissions to Revenue in respect of them, between 1 February 2020 and 15 March 2020. The scheme is also available where employees have been laid off as a result of COVID-19. These employees can be taken back onto the payroll and will qualify for the subsidy if they were on payroll at the end of February.

Eligibility for the Wage Subsidy Scheme

In any review of eligibility by Revenue, the critical requirement is to be able to show significant negative economic disruption due to COVID-19. Revenue have given an illustrative, non-exhaustive list of proofs which may be considered relevant evidence demonstrating eligibility for the scheme:

(a) if the decline in turnover was less than 25%, the business should retain documentation supporting its rationale for believing that it would suffer such a decline;

(b) copies of documentation submitted to a financial institution as part of the negotiation of forbearance measures with the financial institution;

(c) copies of notifications or communications to employees or trade unions or staff representative bodies of salary/wage cuts implemented as a direct result of the COVID-19 pandemic;

(d) copies of documentation that show that any cash reserves in the business that are required to fund debt that is equal or greater than the reserve amount;

(e) evidence of reliance on the Government Credit Guarantee Scheme or overdraft facilities or other borrowings for capital purposes; and

(f) in the case of start-up businesses, for example, evidence of a decline in investment by at least 25% arising from the COVID-19 crisis.

2. Employer’s Obligations and Concerns

Remote working

The Government has requested businesses to facilitate remote working for employees where possible. Luckily most start-ups have very flexible and digitally savvy teams, making this one of the easier challenges to deal with. We have outlined below some practical guidance for employers:

(a) Remind employees of their duties and obligations under their contracts of employment and applicable policies, in particular, their obligations and duties in relation to health and safety, confidentiality, data protection, and intellectual property;

(b) Remind employees to continue to take their rest breaks in line with the Organisation of Working Time Act 1997 (as amended);

(c) Request employees to turn off and remove smart devices, such as Alexa, from their home working area in order to maintain client/customer confidentiality;

(d) Ensure that it is possible to continue to communicate with staff during periods of home working (whether by email, text message or telephone);

(e) Consider having an emergency text service in place so that updates can be issued to employees as required; and

(f) Where organisations have agency staff or contractors who are employed by another organisation, engage with these organisations in relation to any decision to close the workplace.

What if an employee is sick?

Employees who are ill, whether suffering from COVID-19 or otherwise, should not be asked to work remotely and the organisation’s sickness absence policy (including sick pay) will apply in such instances.

Can employees be prevented from travelling abroad?

Employees are free to travel abroad in a personal capacity where there are no official restrictions on their doing so.  However, employees should be asked to let their employer know if they plan to travel outside of Ireland.  On their return, they should be asked to self-isolate given the risk that they could pose to other employees.

What data protection issues may arise for employers?

Where an employee is identified as suffering from COVID-19, an employer should be mindful of the employee’s data protection and privacy rights in terms of disclosing their identity to the wider organisation, while remaining cognisant of the employer’s duty of care towards the health and safety of their workforce.

Find more information here.

3. Corporate Governance Challenges

Annual General Meetings

Company directors and secretaries are well advised to modify their usual planning for their company’s annual general meeting (“AGM”). A company must hold an AGM once in each year, and not more than 15 months may elapse between the holding of two AGMs. A newly incorporated company must hold its first AGM within 18 months.

If your company has not yet issued notice of an upcoming general meeting, the directors may wish to consider dispensing with holding a “physical” AGM. Single-member companies and LTD companies may dispense with the requirement to hold an AGM where, before the latest date for the holding of that meeting, all members entitled to attend and vote at the AGM sign a unanimous written resolution approving the business of the AGM.

If holding a “physical” AGM is the preferred option, other approaches are available to limit the risk to those attending:

  • Notice: It may be prudent for any notice of an AGM to include a reference to the potential change of time, date or venue of the general meeting because of the spread of coronavirus, and to set out how this will be communicated to attendees.
  • Proxies:  A member may appoint another person to attend and vote at AGMs as their proxy. Directors should consider if members can consolidate their attendance and voting at AGMs into as few people as possible (having regard to relevant quorum provisions) through proxies.
  • Location of AGMs and use of Technology: Subject to certain conditions, AGMs may be held inside or outside the State. 

If a company has given notice of an upcoming general meeting, the AGM can be postponed so long as the constitution doesn’t provide otherwise. It may be necessary for the general meeting to be adjourned. Any power to adjourn the meeting resides with the meeting itself; that is, it is only by validly commencing the meeting that the meeting can then be immediately adjourned.  Directors can liaise with members in advance of the meeting (notwithstanding that the notice has been issued) in order to canvass the requirement for the meeting to be adjourned based on the advice available to them in relation to COVID-19. Find more information here.

Board decisions

It may not practically be possible for all or for a quorum of the directors to meet together by holding a “physical” directors’ meeting. In these circumstances, it may be possible for the directors to act by way of a written resolution instead of holding a physical meeting or for the directors to meet by electronic means. Directors’ decisions made by written resolution must be unanimous so that all eligible directors (being those entitled to vote on the relevant matter) must vote on it in the same way. 

The written resolution can consist of several documents in like form each signed by one or more directors and will take effect from the time it was signed by the last director. This is to facilitate the passing of written resolutions where one or more directors is unable to sign the same piece of paper. Find more information here.

Directors Meetings’ by Electronic Means

Unless the constitution provides otherwise, directors’ meetings may consist of a conference between some or all of the directors who are not all in one place but each of whom is able to speak to and be heard by each of the other directors (directly or by means of telephonic, video or other electronic communication).  A director taking part in such a conference will be deemed to be present in person at the meeting and be entitled to vote and be counted in the quorum. The meeting will be deemed to take place where the largest group of participants is assembled or (where no such group is assembled) where the chairperson is located. If neither of these cases apply, the meeting itself can decide the location. Find more information here.

Annual Returns

The Registrar of Companies has decided that all annual returns due to be filed by companies between now and 30th June, 2020 will be deemed to have been filed on time if all elements of the annual return are completed and filed by that date. This will enable businesses and their financial advisers to focus on the more pressing and immediate financial challenges. The situation will be kept under review and the date of 30th June may be extended.

How can we help?

McCann FitzGerald is ready and willing to assist clients in addressing all of their concerns in respect of legal and/or taxation issues business may face in responding to COVID-19.  Please contact any member of the McCann FitzGerald team to assist.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.