The Companies (Rescue Process for Small and Micro Companies) Bill 2021 (SCARP Bill) has now passed through the Oireachtas and is expected to be signed into law shortly by the President.
The legislation will be commenced at a future date by the Minister for Trade Promotion, Digital and Company Regulation.
The SCARP Bill details the Government’s proposed rescue process for small and micro companies.
The SCARP Bill applies to both micro companies and small companies.
A micro company is a company that fulfils two (2) of the following criteria the following criteria:
- it has an annual turnover of less than €700,000;
- its balance sheet total is less than €350,000; and
- it has less than ten (10) employees.
A small company is a company that fulfils two (2) of the following criteria the following criteria:
- it has an annual turnover of less than €12,000,000;
- its balance sheet total is less than €6,000,000; and
- it has less than fifty (50) employees.
In reality any micro company will satisfy the test to qualify for SCARP as a small company.
The SCARP framework is modelled on examinership but it is intended to be more accessible and less costly for small companies. This is principally because of the reduced role of the Courts in the process.
The key features of SCARP are as follows:
- it is initiated by a resolution of the company’s directors; unlike examinership which requires a court application;
- the directors must prepare a statement of affairs detailing the financial and trading position of the company and confirm by statutory declaration that they have made full inquiry into the affairs of the company;
- the directors must obtain a report from an insolvency practitioner (who will act as process adviser – see further below) on the company including his opinion as to whether a rescue plan would offer a reasonable prospect of survival for the company;
- the insolvency practitioner is appointed by resolution of the directors as the “process advisor” to formulate a plan to rescue the company within forty two (42) days of appointment;
- certain debts can be excluded from SCARP – taxes and amounts owed under employment legislation;
- a relevant creditor can opt out of the SCARP process on specific statutory grounds. The SCARP Bill only deals with the exclusion of creditors based on taxation grounds. However the SCARP Bill provides that further grounds may be prescribed by ministerial regulation;
- unlike examinership SCARP does not afford a company an automatic period of protection from its creditors. However the process advisor, the company or its directors may apply to court for a stay on proceedings or to restrain further proceedings against the company for a certain period;
- the process adviser may, subject to approval of the Court, repudiate a burdensome contract such as a lease where the repudiation is necessary for the survival of the company as a going concern. The SCARP Bill provides for an out-of-court process where the process adviser can offer an opportunity to the contract counterparty to propose a variation of the terms of the contract to avoid repudiation;
- the rescue plan proposed by the process advisor can provide for the write-down of liabilities and a “cross-class cram down”. A “cross-class cram down” is one where one (1) class of impaired creditors votes in favour of the rescue plan and the rescue plan can then be imposed on all classes of creditors;
- the process adviser must hold meetings of the various classes of creditors and members to present a rescue plan for the company within forty nine (49) days of his appointment;
- the rescue plan is accepted when approved by sixty per cent (60%) in number (and representing a majority in value of at least one (1) class of impaired creditors at the creditors’ meetings);
- a creditor or member may file an objection in Court to a rescue plan on various grounds, including that the rescue plan unfairly prejudices its interests or is unfair and inequitable or was put forward for improper purposes;
- where an objection is filed by a creditor then the process advisor must seek the Court’s approval of the rescue plan;
- if there is no objection filed within twenty one (21) days then the rescue plan becomes binding on all members and creditors, the company and its directors without the need for a Court application.
The introduction of the SCARP Bill is welcome in light of the financial difficulties faced by most small companies as a result of the COVID-19 pandemic and this should mean a high take-up for SCARP.
Professional advice should always be taken before acting on any of the matters discussed. Please contact a member of our team should you wish to discuss this topic further.