Crowe Ireland welcomes new rescue process for small firms

Crowe welcomes new rescue process for small firms

Small Company Administrative Rescue Process (SCARP) 

Crowe Ireland welcomes new rescue process for small firms

It was announced on 11 May 2021, that Minister for Trade Promotion, Digital and Company Regulation, Robert Troy TD had received government approval for the priority drafting of the Companies (Small Company Administrative Rescue Process and Miscellaneous Provisions) Bill 2021. This is very welcome news for indebted small business owners as, should it become law, it will provide for a new dedicated rescue process for small and micro companies. 

The Bill seeks to provide these smaller companies with access to a more affordable alternative to examinership, while still incorporating key elements of the existing examinership model in an administrative context. 

The Small Company Administrative Rescue Process (SCARP) seeks to mirror key elements of examinership in an administrative context, thereby reducing court oversight resulting in efficiencies and lower comparable costs. It has limited court involvement where creditors are engaged in the process and positively disposed to a rescue plan.

The main provisions of the Bill can be broadly summarised as follows:

  • available to small and micro companies (as defined by the Companies Act 2014)
  • commenced by resolution of directors rather than by application to court
  • an insolvency practitioner is appointed by the company to begin engagement with creditors and prepare a rescue plan. The rescue plan must satisfy the ‘best interest of creditors’ test and provide each creditor with a better outcome than a liquidation. In addition to this, no creditor may be unfairly prejudiced by the plan. This is in keeping with established principles under examinership
  • creditors are invited to vote on the rescue plan by day 42 of the insolvency practitioner’s appointment. The proceedings in relation to the required meetings of creditors are in keeping with existing provisions of the Companies Act
  • rescue plan is approved without the requirement for court approval provided that a majority in value of an impaired class of creditors vote in favour of the proposal and no creditor raises an objection to the plan within the 21-day cooling-off period which follows the vote. The approval mechanism is drawn from examinership and provides for a cross-class cram down. This means that where one class of impaired creditor votes in favour of the plan, this decision can then be imposed on all classes of creditors
  • where an objection to the rescue plan is raised, there is an automatic obligation on the company to seek the court’s approval. This acts as a safeguard for creditors
  • concluded within a shorter period than examinership (examinerships can currently run for up to 150 days, SCARP seeks to arrive at a conclusion within 70 days, subject to extension where necessary for court applications)
  • gives safeguards against irresponsible and dishonest director behaviour. Company directors will be subject to the existing restriction and disqualification regime provided for under the Companies Act. The Office of the Director of Corporate Enforcement (ODCE) also has a suite of powers to examine books and investigate, as appropriate, in line with that which is provided for in relation to liquidations, receiverships and examinerships
  • provides that State creditors, the Department of Social Protection and the Revenue Commissioners may be excludable from the process. This means they may determine to opt out of the process on the basis of statutory grounds, for example if the company has a poor history of tax compliance

SCARP also incorporates sufficient safeguards for the protection of creditors:

  • as there is no automatic stay on proceedings, creditors are not impaired by virtue of entry to the process
  • creditors are afforded an opportunity to provide input to the insolvency practitioner upon his or her appointment to disclose any facts they consider material to the process
  • there are various enforcement provisions in relation to failure to comply with filing, notice and information obligations
  • the insolvency practitioner will be subject to the same reporting requirements as a liquidator
  • the current requirements in respect of restriction applications will also apply

While there is still likely some way to go before this new insolvency procedure is in place, if implemented it is likely to be of great assistance to the small and micro business sector as a restructuring and rescue tool, and in particular for companies struggling as we emerge from the COVID-19 pandemic.

Please contact a member of our restructuring and insolvency team if you wish to confidentially discuss the above or any other restructuring requirements and receive a no-obligation consultation. 

Partner, Corporate Recovery - Crowe Ireland
Aiden Murphy
Corporate Recovery
Declan Hanly, Associate Director, Corporate Recovery - Crowe Ireland
Declan Hanly
Director, Corporate Restructuring