The Companies (Rescue Process for Small and Micro Companies) Bill 2021 (Bill) detailing the government's proposed rescue process for small and micro companies (SCARP) has successfully 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.

The SCARP framework is modelled on examinership but is intended to be more accessible and cost-efficient for small companies because of the reduced role for the court. The Bill also makes miscellaneous amendments to the Companies Act.

Particulars of SCARP have now been refined, and the main points to note are:

  • SCARP will be available to small and micro companies unable or likely to be unable to pay their debts as they fall due. A small company is one that meets two of the following criteria, in relation to the previous two financial years:
    • annual turnover of up to €12m;
    • a balance sheet total of up to €6m;
    • up to 50 employees.
  • SCARP is initiated by a resolution of the company's directors (not a court application).
  • In advance of passing the resolution, 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) on the company including his opinion as to whether a rescue plan would offer a reasonable prospect of survival of the company.
  • The same insolvency practitioner is appointed by resolution of the directors as the "process advisor" to formulate a plan to rescue the company within 42 days of appointment. As the same person prepares the report on the company and acts as process adviser, this will save costs. In examinership, the report must be prepared by a separate insolvency practitioner to the examiner, referred to as the independent expert.
  • Certain debts are excludable from SCARP, such as taxes, duties and amounts owed under employment legislation such as redundancy payments. A relevant creditor can opt out of the SCARP process on specific statutory grounds. Grounds for exclusion regarding creditors other than tax creditors, are unclear as those outlined in the legislation are limited to taxation issues. However the Bill provides that further grounds may be prescribed. When presenting the Bill to the Dáil, Minister Troy stated that the Revenue Commissioners are excludable creditors under the Personal Insolvency Act 2012 and have "opted in" to over 90% of cases. He noted that they have committed to being constructive participants in SCARP. This will be crucial to the success of the process as otherwise potentially significant Revenue liabilities that have been "warehoused" during the pandemic will fall outside the process.
  • SCARP does not afford a company an automatic period of protection from 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. Such protections may be necessary for companies who may face creditor action that would threaten the ongoing trade of the business, such as the enforcement of security or retention of title clauses. Such applications will not be necessary for all small companies, which will save them the additional cost of applying to court.
  • The process adviser may, subject to court approval, repudiate a burdensome contract such as a lease where the repudiation is necessary for the survival of the company as a going concern. The Bill provides for an out-of-court process whereby the process adviser offers an opportunity to the counterparty to propose a variation of the terms of the contract to avoid repudiation.
  • The rescue plan can provide for the write-down of liabilities and cross-class cram down. Cross-class cram down means where one class of impaired creditors votes in favour of the rescue plan, it can 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 49 days of appointment.
  • The rescue plan is accepted when approved by 60 per cent in number, representing a majority in value of at least one 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, is unfair and inequitable or was put forward for improper purpose. Where an objection is raised, the process advisor must seek the court’s (either the High Court or the Circuit Court) approval of the rescue plan.
  • If there is no objection filed within 21 days, 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 SCARP will provide small and micro companies with a viable alternative to examinership, which previously was beyond the resources of many such companies to restructure their businesses. As COVID-19 related financial supports are withdrawn by the Government in the coming months, it is likely that SCARP will be widely availed of.