Matthew Austin: Small companies will welcome proposed administrative rescue process

Matthew Austin: Small companies will welcome proposed administrative rescue process

Matthew Austin

Matthew Austin and Mary Gill of Hayes solicitors LLP explain how the proposed new rescue process for small and micro businesses will operate.

The Department of Enterprise Trade and Employment announced on 10 May 2021 that it has secured government approval for the priority drafting of the Companies (Small Company Administrative Rescue Process and Miscellaneous Provisions) Bill 2021.

The Small Company Administrative Rescue Process (SCARP)

The Bill will address the need for a simplified restructuring process for viable small businesses. The process aims to be both timely and cost effective. The Small Company Administrative Rescue Process will ensure these businesses have access to a restructuring framework, which incorporates key elements of the existing examinership model in an administrative context. The process will be commenced without the need for Court approval, resulting in potential efficiencies and lower comparable costs. Where creditors are engaged in and approve the rescue plan, the Court will have limited involvement.

Who will the new process affect?

The Small Company Administrative Rescue Process is designed specifically for “micro” and “small” companies as defined in the Companies Act 2014, which represent 98 per cent (by number) of companies in Ireland. This includes all companies that fulfil two or more of the following requirements:

  • The company turnover does not exceed €12,000,000;
  • The balance sheet total of the company does not exceed €6,000,000;
  • The number of employees does not exceed 50.

The main provisions of the Bill

  • The process is commenced by resolution of the directors of the company rather than by application to the Court and is concluded within a shorter period than examinership.
  • An insolvency practitioner known as a “Process Advisor” is appointed by the company to engage with creditors and prepare a rescue plan. The rescue plan must satisfy the “best interest of creditors” test, meaning the plan would provide each creditor with a better financial outcome than if the company was liquidated. No creditor can be unfairly prejudiced by the plan.
  • The creditors of the company will be invited to vote on the rescue plan by day 42 of the Process Advisor’s appointment. The proceedings in relation to the required meetings of creditors are in keeping with existing provisions of the Companies Act 2014 regarding meetings of creditors of insolvent companies.   
  • The rescue plan is approved without the requirement of Court intervention provided the 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 period which follows the vote.
  • Where there is an objection to the rescue plan, there is an automatic obligation on the company to seek the Court’s approval.
  • The process seeks to arrive at a conclusion within 70 days. This may be subject to an extension where necessary for Court applications.

Protection of creditors

The Small Company Administrative Rescue Process incorporates safeguards for the protection of creditors of the companies engaging in the process. The following protections are afforded to these creditors:

  • There is no automatic stay on proceedings to recover debt owed by the insolvent company, thus creditors are not impaired by agreeing and entering into the rescue plan.
  • Creditors can engage with the Process Advisor upon his/her appointment and disclose any facts they consider relevant to the process.
  • The Process Advisor will be subject to the same reporting requirements as a liquidator.
  • Company directors will be subject to the existing restriction and disqualification regime provided for under the Companies Act 2014.
  • The Office of the Director of Corporate Enforcement will also have the power to examine books and investigate, as appropriate, in line with that which is provided for in relation to liquidations, receiverships and examinerships.

Given the current economic environment, the Minister for Trade Promotion, Digital and Company Regulation, has given priority to the Bill, which he expects will be signed into law early this summer. The new Act will be greatly welcomed by micro and small companies which employ in the region of 788,000 workers in Ireland.

Matthew Austin: Small companies will welcome proposed administrative rescue process

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