SCARP provides a simplified Company Restructuring process for Ireland’s Small and Micro Business

SCARP Examinership

By Caitlyn Buchanan, 23rd June 2021 (Updated 24th September 2021)

The Companies (Rescue Process for Small and Micro Companies) Act 2021 (SCARP) was passed on 13th July 2021. The commencement order has yet to be signed but is due to happen shortly. The CRO is preparing for this change already with the introduction of a number of new forms.

In May, Robert Troy TD, Minister for Trade Promotion announced the Bill that would bring changes to Ireland’s current rescue framework. The changes amend the Companies Act 2014 with the introduction of a simplified company restructuring process for micro and small companies; the Small Company Administrative Rescue Process (SCARP). When enacted, SCARP will provide a more timely and cost-efficient alternative to Ireland’s current Examinership framework by removing the need for Court approval.

Small and micro companies make up 90% of companies registered in Ireland and employ a total of 780,000 people. Approximately 78% of those companies are operating in sectors which have been significantly impacted or challenged by the pandemic including retail, hospitality, and the service industry. Business owners are facing enormous pressure to meet current or short-term liabilities while ensuring the future sustainability of their businesses. Minister for Trade Promotion stated that as the economy re-opens, it is important to fundamentally support viable companies as they commence trading and to help them get back on their feet. The primary objective of the SCARP process is to provide an appropriate regulatory response that is in line with Examinership.

What is Examinership?

Examinership allows an insolvent company to obtain the protection of the Court so that it can explore all opportunities for its survival. A major benefit of examinership is that the company can restructure while maintaining management friendly processes that are inclusive of customers, creditors, suppliers, and employees. A successful outcome may include reduced creditor balances, protection of company assets, investment is obtained, and the directors remain in control of the business.

Why is the SCARP Company Restructuring Process needed?

Although internationally recognised, Ireland’s examinership procedure court fees often result in an expensive undertaking that may be beyond the reach of small businesses. The pandemic has had a profound impact on these businesses creating an urgent need for alternative restructuring options with less red tape and lower costs. The Act ensures these companies will have access to an alternative company restructuring framework, which incorporates key elements of the existing examinership model in an administrative context.

How is SCARP different from Examinership?

Company Restructuring processExaminership is a process that is managed through the High Court. The SCARP company restructuring process is less cumbersome, it is an administrative process that a company director(s) can apply. The SCARP process involves an insolvency practitioner who is appointed by the company to engage with creditors and prepare a rescue plan. This is followed by a proposal that aims to provide each creditor with a better outcome than liquidation. SCARP company restructuring process mirrors key elements of examinership while limiting the Court’s control to reduce costs associated with the rescue plan.

Who can avail of SCARP?

The SCARP Company Restructuring Process is available to small and micro companies who are unable or unlikely to be able to pay their debts. To be considered a small company it must meet two or more of the following requirements:

    1. Annual turnover of up to €12m;
    2. a balance sheet total of up to €6m;
    3. up to 50 employees.

The main provisions of the Act and SCARP include:

  • SCARP was designed for small and micro companies, which represent 98% of companies registered in Ireland.
  • Commenced by resolution of directors instead of an application to the Court.
  • The process is overseen by a Process Advisor (insolvency practitioner).
  • Shorter time period than examinership.
  • The rescue plan does not require court approval and can be passed by a Creditor’s vote.
  • If Creditors object to the rescue plan, the company is automatically obligated to seek the Court’s approval.

The SCARP company restructuring process has been developed over a condensed time period to provide a much-needed alternative to Examinership for small companies. Its development requires the involvement of the Company Law Review Group, Revenue Commissioners, the Department of Justice, as well as public consultation.

Please Note: SCARP has not yet been enacted in Ireland, this article will be updated as soon as we have more information on when it will be coming into force.

If you have any questions on the information covered in this article or if you would like assistance with a company restructuring process under Examinership please don’t hesitate to Contact Us or call +353(0)1 6461625.

 

Disclaimer This article is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Company Bureau for any action taken or not taken in reliance on the information set out in this article. Professional or legal advice should be obtained before taking or refraining from any action as a result of this article. Any and all information is subject to change. 

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