The SCARP process is an excellent tool for small businesses that want to restructure, writes Beauchamps partner Simon Murphy.
As the economic outlook for late 2022 and into 2023 looks turbulent, now is the time for companies to assess the impact on their business of a change in market conditions and to consider whether corporate restructuring is required. The likely rise in interest rates, the increasing costs of materials and the requirement for the repayment of Revenue liabilities warehoused from the Covid-19 pandemic, will create a more challenging trading environment for all companies.
What is SCARP?
In 2019 the European Union introduced the European Directive on Preventative Restructuring. This directive sought to harmonise the position with respect to restructuring in the EU. Ireland responded to the Directive by introducing a new insolvency process for small companies under the Companies (Rescue Process for Small and Micro Companies) Act 2021 (SCARP).
The SCARP process is available to c.85% of companies in Ireland and it seeks to allow a small company to restructure its debts so that the viable element of the business may continue as a going concern.
Who can use SCARP?
In Association with
A company can be eligible to utilise SCARP as a ‘small company’ if it satisfies any two of the following conditions:
• The turnover of the company does not exceed €12 million
• The balance sheet of the company does not exceed €6 million
• The average number of employees does not exceed 50 people.
A company can be eligible to utilise SCARP as a ‘micro company’ if the following conditions are satisfied:
• The company must qualify for the small companies regime (as defined by section 280C of the Companies Act 2014), and
• Two or more of the following requirements must be satisfied in a financial year:
(i) The turnover of the company does not exceed €700,000
(ii) The balance sheet of the company does not exceed €350,000, and
(iii) The average number of employees does not exceed 10 people.
Process
To enter the SCARP process, an insolvency practitioner (known as a Process Advisor) must be appointed. They will review the position of the company. If they determine that there is a reasonable prospect of survival of the company, the Process Advisor will begin to prepare a rescue plan for the company and seek to consolidate or address the liabilities of the company.
Once the rescue plan is to hand, the Process Advisor will call meetings of the members and creditors of the company to vote on it. If 60% in number representing the majority in value of the claims represented at that meeting have voted in favour of the rescue plan, it will be deemed accepted.
Where the rescue plan is approved by the creditors and members, it is then implemented by the directors of the company and the restructured company continues to trade into the future.
Key features
The key features of SCARP include that:
• The directors of the company remain in control of and responsible for the running of the business
• Subject to court approval, or an alternative out-of-court procedure, the process adviser may repudiate contracts that are burdensome if necessary for the survival of the company
• Tax liabilities may be excluded from the rescue plan, and
• There is no automatic protection from creditors during the SCARP process.
If you have any query in relation to restructuring or for further information, please get in touch with the Beauchamps Insolvency & Corporate Restructuring team: Simon Murphy (sa.murphy@beauchamps.ie)
