SCARP: The new restructuring tool to rescue small and micro companies

Anticipating the assistance smaller businesses might require as they emerge from the financial challenges of pandemic, the Government has rightly come out with the Companies (Small Company Administrative Rescue Process and Miscellaneous Provisions) Bill 2021. What exactly Is the small company administrative rescue process and why is it needed? Small company administrative rescue process (also referred as SCARP) is a simplified restructuring tool available as an affordable alternative to the court supervised examinership. It aims to mirror the key components of the examinership process in an administrative context and reduce court involvement thereby minimising inefficiencies and related costs. Further as the economy reopens and government or lenders support to small/micro businesses reduce, a more cost-effective restructuring process will become indispensable for companies that have been heavily dented by COVID. The main features and safeguards available under SCARP regime A careful reading of the proposed bill reveals that the lawmakers have tried to replicate the mantra behind the examinership process in the new SCARP regime, but with limited court oversight and minimum cost to small or micro businesses. Some of the salient aspects of the SCARP bill are as follows:

The process is available to small and micro companies as defined by Companies Act 2014.
Commenced by a resolution of Directors contrary to making a court application as under the examinership process.
Overseen by an insolvency practitioner known as “process advisor” who will formulate a rescue plan keeping the ‘best interest of creditors’ in mind. This will essentially safeguard stakeholders against dishonest and irresponsible behaviour of company directors.
The rescue plan will be subject to a voting at a creditors meeting by day 42 of the process advisor being appointed.
In the event, the rescue plan receives the approval of the simple majority in value of an impaired class of creditors, the plan will be passed without any court approval and will be binding on all the parties involved. On the contrary, if an objection is raised by any creditor within the 21-day cooling off period, the company would be then obligated to seek an approval from court.
The SCARP process should be completed within a period of 70 day, as opposed to 150 days under examinership process.

The safeguards available to creditors under SCARP are as follows:

There is no automatic stay on any current proceedings initiated by the creditors, thereby not impairing creditors by virtue of their entry into process.
Creditors have the right to engage in the process upon appointment of the ‘process advisor’ and provide inputs or disclose facts they perceive as material to the process.
Various enforcement provisions for failing to comply with filing, notice and information obligations, have been included.
The insolvency practitioner or process advisor will be subject to reporting requirement similar to that as a liquidator.

Even though certain provisions like businesses with a poor tax compliance history or Revenue as their largest creditor to be excluded from SCARP, may draw some flak- SCARP will still be a welcome news for many businesses struggling owing to pandemic. The proposed bill, when finally signed into law, will garner irrevocable support from micro and small companies that employ around 788,000 workers in Ireland.