New Insolvency Framework Offers Small Companies a Lifeline in Uncertain Times

On 22 July 2021 the President signed into law The Companies (Rescue Process for Small and Micro Companies) Act 2021 (the “Act”) which provides a dedicated rescue framework for the benefit of small and micro companies (SCARP). The Act makes miscellaneous amendments to the Companies Act 2014.

SCARP seeks to mirror key elements of examinership but also to provide an alternative, less technical scheme for the benefit of small and micro companies. SCARP intends to be more accessible and cost efficient than the more robust, technical and costly examinership process with the new process being capable of conclusion within a shorter period of time than examinership and with the Court playing a far more reduced role.

The main features of SCARP can be summarised as follows: -
  • SCARP will be available to small and micro companies who are unlikely or unable to pay their debts as they fall due. A small company is a company that fulfils 2 or more of the following requirements:
    • The amount of the turnover of the company does not exceed €12 million.
    • The balance sheet total of the company does not exceed €6 million.
    • The average number of employees of the company does not exceed 50.

  • The initiation of the process will be simpler than an application to Court under examinership and will instead commence by way of resolution of the directors of the company.

  • Prior to passing the resolution, the directors must prepare a statement of affairs of the company and confirm by statutory declaration that they have made a full investigation into the affairs of the company. This initial process is analogous to a creditor’s voluntary winding up, in terms of its relative simplicity. However, the SCARP process will include an additional requirement, namely that a report from an insolvency practitioner on the company must also be obtained which must include his/her opinion as to whether or not the company has a reasonable prospect of survival. Therefore, the SCARP process will still involve an independent third party expert from the outset, just like examinership.

  • The same insolvency practitioner is then appointed to the company to begin engagement with creditors and prepare a rescue plan. The rescue plan must satisfy the best interests of the creditors and provide each creditor with a better outcome than a liquidation. Thus, the insolvency practitioner must include a detailed comparison of the outcomes of both and positively assert a better outcome for the creditors.

  • Creditors are invited to vote on the rescue plan by day 49 of the insolvency practitioner’s appointment.

  • The rescue plan will be deemed to have been approved without the requirement for Court approval provided that 60% in number and value of an impaired class of creditors vote in favour of the proposal and no creditors raise an objection to the plan within the 21 days which follows the vote.

  • 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 impacted by the scheme and is very similar in nature to the statutory scheme in personal insolvency cases.

  • The whole process will conclude within 70 days which, is a shorter period than examinership which can currently run up to 150 days.

The introduction of SCARP will significantly reduce the Court’s role in the examinership process and will be welcomed by micro and small companies who may have suffered and who are suffering financial difficulties as a result of, the Covid-19 pandemic.
The Act and explanatory memorandum are available on the Oireachtas website.

To discuss the new SCARP framework in more detail, or any other aspect of corporate or personal insolvency please contact Deirdre Murphy or Andrew Croughan.