Minister Robert Troy has secured government approval for the priority drafting of the Companies (Small Company Administrative Rescue Process and Miscellaneous Provisions) Bill 2021.

The Bill amends the Companies Act 2014 to provide for a new dedicated rescue process for small and micro companies.

Insolvency experts have long held the view that costs associated with the examinership process mean it may be beyond the reach of small and micro enterprises. The Bill provides for a cheaper framework, which incorporates key elements of the existing examinership model in an administrative context.

According to Troy (pictured): “As the economy re-opens, we must have an appropriate regulatory response which supports fundamentally viable companies to continue to trade and get themselves back on their feet.

“I know that examinership works and saves both companies and employment. However, as it is overseen by the court from beginning to end, it can be an expensive undertaking, and thus out of reach for your average small company, whether that be a local restaurant or hairdresser."

In Association with

The minister explained that the Small Company Administrative Rescue Process (SCARP) seeks to mirror key elements of examinership in an administrative context thereby reducing court oversight resulting in efficiencies and lower comparable costs. It has limited court involvement where creditors are engaged in the process and positively disposed to a rescue plan.

The main provisions of the Bill are:

• Designed for small and micro companies (as defined by the Companies Act 2014) which represent 98% of companies in Ireland. A small company is defined as a business with under 50 employees and either a turnover of under €8.8 million or a balance sheet of under €4.4 million.
• An insolvency practitioner (who must be qualified to act as liquidator under the Companies Act) is appointed by the company to begin engagement with creditors and prepare a rescue plan. The rescue plan must satisfy the ‘best interest of creditors’ test and provide each creditor with a better outcome than a liquidation. In addition to this, no creditor may be unfairly prejudiced by the plan.
• Creditors are invited to vote on the rescue plan by day 42 of the insolvency practitioner’s appointment. The proceedings in relation to the required meetings of creditors are in keeping with existing provisions of the Companies Act.
• The rescue plan is approved without the requirement for court approval provided that a majority in value of an impaired class of creditors vote in favour of the proposal and no creditor raises an objection to the plan within the 21-day cooling off period which follows the vote. The approval mechanism is drawn from examinership and provides for a cross-class cramdown. This means that where one class of impaired creditor votes in favour of the plan, this decision can then be imposed on all classes of creditors.
• Where an objection to the rescue plan is raised, there is an automatic obligation on the company to seek the court’s approval.
• Concluded within a shorter period than examinership (examinerships can currently run for up to 150 days, SCARP seeks to arrive at a conclusion within 70 days, subject to extension where necessary for court applications).
• Has safeguards against irresponsible and dishonest director behaviour. Company directors will be subject to the existing restriction and disqualification regime provided for under the Companies Act. The Office of the Director of Corporate Enforcement also has a suite of powers to examine books and investigate, as appropriate, in line with that which is provided for in relation to liquidations, receiverships and examinerships.
• Provides that State creditors, the Department of Social Protection and the Revenue Commissioners may be excludable from the process. This means they may determine to opt out of the process on the basis of statutory grounds, for example if the company has a poor history of tax compliance

According to Troy, SCARP also incorporates safeguards for the protection of creditors:

• As there is no automatic stay on proceedings, creditors are not impaired by virtue of entry to the process.

• Creditors are afforded an opportunity to provide input to the process advisor (insolvency practitioner) upon his or her appointment to disclose any facts they consider material to the process.

• There are various enforcement provisions in relation to failure to comply with filing, notice and information obligations.

• The process advisor will be subject to the same reporting requirements as a liquidator.

•  The current requirements in respect of restriction applications will also apply.

Minister Troy added: “While court involvement is limited, I am conscious the issue of corporate rescue extends far beyond the distressed company itself. As such, the process incorporates robust safeguards and reflects what I believe to be a fair balance of the sometimes competing interests of stakeholders.

“For example, state creditors will operate on an ‘opt-out basis’ on prescribed grounds such as if the company has a poor history of tax compliance. This should provide comfort to business that the state will not remove itself from the process for arbitrary reasons.”

The Bill further amends the Companies Act 2014 to progress recommendations made by the Company Law Review Group in relation to the provision of information to employees as creditors during a liquidation.

Susan Cosgrove of Cosgrove Gaynard Solicitors commented: “It is important to note that this process will not replace examinership which is still available to companies that do not by definition fall into the category of a small business.

“The new process is a welcome development for small businesses who previously may have been prevented from entering the examinership process due to associated costs and time frames involved.”

Pic: RollingNews.ie