The Government has announced a new scheme for rescuing small companies that is modelled on Examinership but designed for small companies.

At the time of writing the scheme has been announced but the Bill has not yet been published. This article is based on the proposals published earlier this year and the recent Government statements on the proposed legislation.

Who can use the new rescue process:

The Small Company Administrative Rescue Process (SCARP) is for small companies as defined in Section 280A of the of the Companies Act 2014. The company needs to meet two of the following three criteria;

1. the amount of turnover of the company does not exceed €12 million;
2. the balance sheet total of the company does not exceed €6 million; and
3. the average number of employees does not exceed 50.

A company will still meet the criteria if it met the criteria in the previous years and only exceeded the limit for the first time in the current year. A company will also meet the criteria is it was large or medium in the past but has been small for the last two years. The balance sheet total is the total of gross assets without deduction for liabilities. The average number of employees is based on a formula which counts an employee based on the number of persons employed under contracts of service by the company in a month (whether throughout the month or not) and each month of the year is then added together. In the extreme this means that an employee who works just one hour in a month is counted as 1/12 of an annual employee. Businesses regulated by the Central Bank of Ireland are not allowed to use the procedure.

Minister Troy has said that it is planned that onerous contracts can be repudiated through the process although he said that this will be an addendum to the process requiring court approval and it is expected that renegotiation of onerous contracts instead of repudiation will be the norm. Minister Troy also said that Revenue debt will only be excluded from cram down in cases of tax avoidance.

Process

1. Up to date financial statement and creditors list will need to be prepared in advance of commencing the process. The directors or their external accountant should also prepare a business plan showing that the business could be successful if freed from the burden of historical debt. There may be insufficient time to prepare these documents during the protection period, so they should be completed ideally before the process is commenced.
2. Engage a Process Advisor (insolvency practitioner) and agree a timeline and costs.
3. Formally call a directors meeting and pass a director’s resolution to put the company into a Business Administrative Rescue Process.
4. The Process Advisor will undertake some additional due diligence on both the creditors list and the future business plan. The Process Advisor will then prepare a rescue proposal and commence the process of contacting and agreeing the proposal with creditors.
5. Once a majority of creditors by value agree to the plan and no creditor objects, the plan is finalised.
6. In certain circumstances tax debts can be included in the cram down proposal, but the Government statement was silent on the cramming down or renegotiation of lease liabilities.
7. The business will then continue to trade with the debts written off and the prospect of future success.
8. The Process Advisor will have to report any instances of the directors not acting honestly and responsibly before or during the process to the Office of the Director of Corporate Enforcement (ODCE).