June 21, 2021
Proposed changes to Local Property Tax
The Minister for Finance announced proposed changes to the Local Property Tax (“LPT”) recently. All homes will be re-evaluated under the new regime. The rate is being cut, however the...
The Department of Enterprise Trade and Employment announced on the 11th of May that it has secured government approval for the priority drafting of the Companies (Small Company Administrative Rescue Process and Miscellaneous Provisions) Bill 2021.
The bill will provide the statutory footing for the Small Company Administrative Rescue Process (“SCARP”). This follows the public consultation process on foot of the Company Law Review Group’s (“CLRG”) report recommending that a formal restructuring process similar to examinership be introduced specifically for small and micro companies.
What is the Small Company Administrative Rescue Process (“SCARP”)?
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.
In order to reduce the costs involved, companies seeking to avail of SCARP will not be required to apply to court to commence the restructuring process. Rather, SCARP provides for its commencement upon a resolution of the directors of the company. In the place of a court appointed examiner it is envisaged that an insolvency practitioner qualified to act as a liquidator will be appointed as a ‘process advisor’ over the company. This process advisor will formulate a rescue plan for the company which will be subject to a vote by the company’s creditors at a creditors’ meeting.
Once a rescue plan is approved, a 21-day cooling off period would follow to permit any creditor to raise objections. After the 21-day cooling off period has ended the rescue plan will come into effect and there will be no requirement for a court application.
Why the need for a new restructuring process?
Examinership, while an extremely effective corporate restructuring mechanism, requires court oversight which increases the costs to the company in question. Despite the 2014 Companies Act permitting the Circuit Court jurisdiction to supervise the examinership of smaller companies the reality was that the process still involved a number of court applications and substantial legal costs.
The pandemic has taken a significant toll on the economy in general, but especially on small/micro companies within retail, hospitality, and service industries. Once Covid-19 restrictions ease this summer and government support and creditor forbearance reduces, it’s clear that a cost-effective restructuring process will be required for these at-risk companies.
Protection of creditors
SCARP incorporates safeguards for creditors partaking in the process. The following are some protections available to creditors under the process:
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.
About the author: Dermot McClean, Solicitor on the Insolvency Team.
Contact our office
Make an enquiry