General Scheme of Companies (Small Company Administrative Rescue Process and Miscellaneous Provisions) Bill 2021 (“SCARP”) just published.
Moments ago, the general scheme of the SCARP Bill was published. This follows the announcement made by the Minister for Trade Promotion, Digital and Company Regulation, Robert Troy T.D. on 11 May. SCARP emanates from the recommendations of the Company Law Review Group (“CLRG”) made in October 2020. 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.
Key features of SCARP:-
- Available to small and micro companies (as defined by the Companies Act 2014).
- Commenced by resolution of directors rather than by application to Court.
- No automatic stay on proceedings against the Company.
- 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.
- Creditors are invited to vote on the rescue plan by day 42 of the insolvency practitioner’s appointment. The proceedings in relation to the required meetings of creditors are in keeping with existing provisions of the Companies Act.
- The rescue plan is binding without Court approval provided that a 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 a 21-day cooling off period following the vote. The approval mechanism is drawn from examinership and provides for a cross class cram down. This means that where one class of impaired creditor votes in favour of the rescue plan, it can be imposed on all classes of creditors.
- Where an objection to the rescue plan is raised, there is an automatic obligation on the company to seek Court approval. This acts as a safeguard for creditors.
- Concluded within a shorter period than examinership (examinerships can currently run for up to 150 days, SCARP seeks to arrive at a conclusion within 70 days, subject to extension where necessary for Court applications).
- Permits repudiation of contracts by the Company with Court approval.
- Has safeguards against irresponsible and dishonest director behaviour. Company directors will be subject to the existing restriction and disqualification regime provided for under the Companies Act. The Office of the Director of Corporate Enforcement (ODCE) also 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.
- Provides that State creditors, the Department of Social Protection and the Revenue Commissioners may be excludable from the process. This means they may determine to “opt out” of the process on the basis of statutory grounds, for example if the company has a poor history of tax compliance.