Legislation for SCARP provides a dedicated rescue framework for viable small and micro companies to emerge from pandemic.

A new Bill that enables viable small and micro companies to stay in business as Ireland emerges from the Covid-19 pandemic is about to become law.

The new Companies (Rescue Process for Small and Micro Companies) Bill 2021 has been passed through the Houses of the Oireachtas.

“We quickly recognised that additional measures would be necessary to support businesses in the face of the rapidly evolving Covid-19 crisis”

As previously reported by ThinkBusiness, the new Bill provides for a Small Company Administrative Rescue Process (SCARP) that will be cost-efficient and capable of conclusion within a shorter period of time than examinership.

The Bill also makes miscellaneous amendments to the Companies Act to enhance the rights of employees in liquidations.

Dedicated rescue process

SCARP mirrors key elements of existing examinership framework in an administrative context. It amends the Companies Act 2014 to provide for a new dedicated rescue process for small and micro companies.

“I am pleased to announce that the Companies (Rescue Process for Small and Micro Companies) Bill 2021 has now successfully passed all stages in both Houses of the Oireachtas, where it received overwhelming support, and will shortly become law,” said Minister for Trade Promotion, Digital and Company Regulation, Robert Troy, TD.

“Over the past year, this Government has focused on supporting businesses and ensuring jobs were protected through what has been a very difficult year. We quickly recognised that additional measures would be necessary to support businesses in the face of the rapidly evolving Covid-19 crisis. We set our sights on a proactive and comprehensive review of the regulatory framework for the rescue of viable small and micro companies and an assessment of all available policy options to enable these companies to continue in business and return to full operation and profitability.”

Minister Troy said the Bill is the culmination of a year-long effort to ensure that Ireland has in place the necessary legal framework to help viable companies stay in business as we emerge from the pandemic.

“The Bill provides for a streamlined, workable and practical process to allow these companies restructure and continue to trade. It is built on a tried and tested framework, examinership, and with the benefit of input from business, trade unions, insolvency practitioners and legal practitioners. It is clear from the broad welcome of the Bill that our approach was correct and strikes a fair balance between stakeholders affected by corporate rescue.

“The Bill also provides for amendments arising from the Company Law Review Group’s first phase of work in the area of employees’ rights as creditors under the Companies Act, in line with the recently published Plan of Action on Collective Redundancies following Insolvency. The plan has been broadly welcomed by the social partners and in particular the Irish Congress of Trade Unions. I am grateful to all involved for their constructive engagement in this space and look forward to our continued work together,” Minister Troy said.

Features of the Bill

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 (who must be qualified to act as liquidator under the Companies Act) 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 49 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.
  • The rescue plan is approved without the requirement for court approval provided that 60% in number representing the majority in value of claims 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.
  • Repudiation of onerous contracts, including leases, is provided for subject to court oversight as appropriate.
  • Concluded within a shorter period than examinership (examinerships can currently run for up to 150 days, SCARP seeks to arrive at a conclusion within a shortened timeframe, subject to extension where necessary for court applications),
  • Has safeguards against irresponsible and dishonest director behaviour. The process will be within scope of existing reckless trading provisions. The Director of Corporate Enforcement 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.
  • Includes State creditors such as the Department of Social Protection and the Revenue Commissioners. They may opt out of the process on specified statutory grounds.

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 process advisor (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 Bill also includes miscellaneous provisions amending company law in line with the recently published Plan of Action on Collective Redundancies following Insolvency.

By John Kennedy (john.kennedy3@boi.com)

Published: 14 July 2021

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