A new rescue process for small companies in financial difficulty has been introduced in Ireland. The new process solidifies Ireland’s position as an international leader in this field.
The Companies (Rescue Process for Small & Micro Companies) Act 2021 commenced on 7th December.
The Act creates a framework which was specifically designed for the financial rescue and restructure of small and micro companies. This framework is called the Small Company Administrative Rescue Process (SCARP).
Ireland’s existing framework for examinership was used in order to create this rescue process. The Minister of State for Trade Promotion, Digital and Company Regulation, Robert Troy said that the new process seeks to mirror key elements of examinership in an administrative context. The Minister says it will thereby reduce court oversight, resulting in efficiencies and lower comparable costs.
This new simplified and effective framework aims to have limited court involvement. It allows creditors to engage positively with the process and be a part of the rescue plan. It aims to give small and micro companies a genuine opportunity to restructure and continue to trade.
Who’s Eligible for Rescue Process for Small Companies?
The SCARP is available to small and micro companies as defined under sections 280A and 280D of the Companies Act 2014. Outlined below is how small and micro and companies are identified, by satisfying at least two of these characteristics:
||Turnover not exceeding:
|Balance Sheet Total not exceeding:
|Average number of employees not exceeding:
How to Access Rescue Process for Small Companies
If you are a micro or small company and want to avail of the process, here’s the procedure:
- Furnish a sworn statement of affairs to a Process Advisor (the “PA”)
- The PA needs to be satisfied that there is a reasonable prospect of survival of the Company. If they are , then, they prepare a report which is similar to an Independent Expert’s Report in Examinership. This report aims to address the conditions and/or funding required to allow the Company continue trading as a going concern.
- Within 7 days of receiving this report, the Company’s board of directors passes a resolution to appoint the PA.
- The PA must notify creditors within 2 working days of their appointment, The PA requests that creditors make submissions in respect of their claims. If a creditor fails to respond, the PA establishes the claim’s value, based on the information available to them.
- The PA then has 49 days to prepare proposals for a rescue plan (the “Rescue Plan”) for the Company. This will likely involve a write-down of debt. The Rescue Plan can write down secured debt. However, it cannot write down debt below the value of a creditor’s security. Also, the plan cannot impact on the liability of third-party guarantors. The PA is responsible for holding meetings of the Company’s member(s) and creditors to approve the Rescue Plan.
- If the Rescue Plan is passed, it becomes binding on all creditors under the following condition. But 60% of creditors from at least one impaired class of creditors must support it. Furthermore, these creditors must represent a majority in value of the claims in that class. Also, notice must be filed with the relevant Court for the plan to become binding. This is assuming no objection has been filed. Creditors can file objections with the relevant Court on a number of prescribed grounds. However, they must do so within 21 days of the notice being filed with the Court.
Potential Impact of Rescue Process for Small Companies
It remains to be seen whether this new process will differ from examinership in practical terms. But it does appear to be a more cost-effective way of restructuring a company in difficulty.
For advice on commencing the rescue process for small companies, please contact our dispute resolution and restructuring team: email@example.com or firstname.lastname@example.org .