SCARP - The new, more efficient restructuring process for SME’s

The Government have approved the publication of the Companies (Rescue Process for Small and Micro Companies) Act 2021. The Act amends the Companies Act 2014 to provide for a new Small Company Administrative Rescue Process (SCARP) that mirrors key elements of existing examinership framework in an administrative context.

THE PROCESS

1. APPOINTMENT OF INSOLVENCY PRACTITIONER
   An insolvency practitioner is appointed to formulate a rescue plan to provide each creditor with a better outcome than liquidation within 6 weeks of his/her appointment.
2. EXCLUDABLE CREDITORS
   Insolvency practitioner identifies excludable creditors and served notice to them that the process is intending to compromise their debt.
3. CREDITORS VOTE
   Creditors vote on the 3 rescue plan by day 49 of the insolvency practitioner appointment.
4. THE DECISION
   The rescue plan will be 60% in number and value approved provided that of an impaired class of creditors vote in favour of the proposal, and no creditors raise objections within the 21 day cooling off period.
5. AN OBJECTION
   If an objection is made, the company must seek the courts approval, to safeguard creditors.
6. FINAL APPROVAL
   The Court must be satisfied that the rescue plan is fair, equitable and does not unfairly prejudice any objecting creditors. If this is proven, the Court will approve the rescue plan.

The main provisions of the Bill can be broadly summarised as follows:

• Available to small and micro companies (as defined by the Companies Act 2014).
  
• Commenced by resolution of directors rather than by application to Court.
  
• 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. This is in keeping with established principles under examinership.
  
• A company can restructure through SCARP, including compromising its debts, without any need for Court approval. This is subject to certain provisos, such as no creditor objecting to the proposal
  
• A company can restructure through SCARP, including compromising its debts, without any need for Court approval. This is subject to certain provisos, such as no creditor objecting to the proposal
  
• 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.
  
• Repudiation of onerous contracts, including leases, is provided for subject to court oversight as appropriate.
  
• Concluded within a shorter period than examinership (examinerships can currently run for up to 150 days, SCARP seeks to arrive at a conclusion within a shortened timeframe, subject to extension where necessary for court applications),
  
• There are various safeguards against irresponsible and dishonest director behaviour. The Director of Corporate Enforcement 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.
  
• Certain debts can be excluded (Revenue, State and Department of Social Protection) but only where there is a concern that SCARP is being used for tax avoidance.
  
• SCARP includes a mechanism that also allows for the repudiation of onerous leases.