Proposed Small Company Administrative Rescue Process (SCARP) to give small firms a faster, more cost-effective way to restructure.

The Department of Enterprise Trade and Employment announced on the 11^th of May that it has secured government approval for the priority drafting of the Companies (Small Company Administrative Rescue Process and Miscellaneous Provisions) Bill 2021.

The bill will provide the statutory footing for the Small Company Administrative Rescue Process (“SCARP”).   This follows the public consultation process on foot of the Company Law Review Group’s (“CLRG”) report recommending that a formal restructuring process similar to examinership be introduced specifically for small and micro companies.

What is the Small Company Administrative Rescue Process (“SCARP”)?

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.

In order to reduce the costs involved, companies seeking to avail of SCARP will not be required to apply to court to commence the restructuring process.  Rather, SCARP provides for its commencement upon a resolution of the directors of the company.  In the place of a court appointed examiner it is envisaged that an insolvency practitioner qualified to act as a liquidator will be appointed as a ‘process advisor’ over the company.  This process advisor will formulate a rescue plan for the company which will be subject to a vote by the company’s creditors at a creditors’ meeting.

Once a rescue plan is approved, a 21-day cooling off period would follow to permit any creditor to raise objections. After the 21-day cooling off period has ended the rescue plan will come into effect and there will be no requirement for a court application.

Why the need for a new restructuring process?

Examinership, while an extremely effective corporate restructuring mechanism, requires court oversight which increases the costs to the company in question. Despite the 2014 Companies Act permitting the Circuit Court jurisdiction to supervise the examinership of smaller companies the reality was that the process still involved a number of court applications and substantial legal costs.

Why Now?

The pandemic has taken a significant toll on the economy in general, but especially on small/micro companies within retail, hospitality, and service industries. Once Covid-19 restrictions ease this summer and government support and creditor forbearance reduces, it’s clear that a cost-effective restructuring process will be required for these at-risk companies.

Protection of creditors

SCARP incorporates safeguards for creditors partaking in the process.  The following are some protections available to creditors under the process:

• There is no automatic stay on proceedings to recover debt owed by the insolvent company, thus creditors are not impaired by agreeing and entering into the rescue plan.
• Creditors can engage with the process advisor upon his/her appointment and disclose any facts they consider relevant to the process.
• The process advisor will be subject to the same reporting requirements as a liquidator.
• Company directors will be subject to the existing restriction and disqualification regime provided for under the Companies Act 2014.
• The Office of the Director of Corporate Enforcement will also have the power to examine books and investigate, as appropriate, in line with that which is provided for in relation to liquidations, receiverships and examinerships.

Given the current economic environment, The Minister for Trade Promotion, Digital and Company Regulation, has given priority to the Bill, which he expects will be signed into law early this summer.

The new Act will be greatly welcomed by micro and small companies which employ in the region of 788,000 workers in Ireland.

About the author: Dermot McClean, Solicitor on the Insolvency Team.