Generally speaking, Examinership arises where an expert provides the opinion that an insolvent company has a reasonable prospect of survival as a going concern. It gives that company breathing space against the enforcement of debts, pending a scheme of arrangement being agreed by its creditors and the court.
In practice in Ireland this is an expensive option for companies which are already in financial trouble.
In order to provide better opportunities for smaller viable companies to survive, and in particular as we move into a future without pandemic business supports, the government have passed the Companies (Rescue Process for Small and Micro Companies) Act 2021 (the “Act”).
The Act includes the Small Company Administrative Rescue Process (SCARP) which is a mechanism akin to Examinership but with some important changes making it easier for smaller companies to benefit.
The Act is awaiting being signed into law by the President but is expected to be commenced in the near future.
Once commenced the Act will provide the following changes for small and micro companies in financial difficulty:-
- Unlike Examinership, the SCARP is commenced by resolution of the company’s directors rather than a court application;
- A rescue plan proposed by the company’s directors will be deemed to have been accepted by a meeting of members or creditors or of a class of members or creditors when 60% in number representing a majority in value of the claims represented at that meeting have voted, in favour.
- A qualified insolvency practitioner is then appointed by the company to prepare a substantial rescue plan and to engage with creditors.
- 42 days after the practitioner is appointed, creditors can vote on the proposed rescue plan.
- The rescue plan will be approved without the need for Court approval where 60% in majority and number of creditors (in at least one creditor pool) vote in favour of the proposal and where no creditor raises an objection to the plan within the 21-day cooling off period which follows the vote.
- If a valid objection to the rescue plan is raised, the company must seek court approval.
- State creditors (such as Revenue) may exclude themselves from the process on statutory grounds. This could potentially include where the company has failed to file tax returns etc.
By reducing the amount of court input in the process, the Act provides companies with a cheaper, quicker option to work their way out of financial difficulty.
If you have any queries in relation to any Corporate Insolvency matter, please do not hesitate to contact either Brendan Dillon or Conor White on 01-2960666.
