Small Company Administrative Rescue Process (SCARP) officially commenced on 7th December 2021.
The process provides a useful rescue tool for SME’s who are facing temporary insolvency. It gives them an affordable option to restructure through a combination of a write-down of debt and new investment. SCARP is based on the key components of the examinership process but with some important differences such as the elimination or reduction of the requirement for court intervention making it more cost-effective, accessible and indeed a quicker process.
Who qualifies for SCARP?
The proposed legislation restricts the process to small companies which comprises up to 98% of companies in Ireland and are defined by companies who meet two of the following three criteria:
- Turnover does not exceed €12 million
- The balance sheet total does not exceed €6 million
- The average number of employees does not exceed 50
This captures approximately 98% of all Irish businesses and so it is expected that there will be significant uptake following its implementation and the withdrawal of Covid 19 government supports.
Key differences to examinership
SCARP is designed to avoid interactions with Court and it is possible to conclude the process without court applications. The following applications are likely to be most common:
- A stay on receivership and provisional liquidation appointments. In order to do so, they must be able to demonstrate to the court that the Company has a reasonable prospect of survival.
- A stay on proceedings that were live at the date of commencement.
- Application to repudiate a lease. This is only likely to arise if the landlord contests the repudiation, otherwise, repudiation will be approved when the Rescue Plan is filed with the court.
- The Process Advisor must notify the landlord of intention to repudiate within 10 days.
- Consideration must be given to any proposals/modifications put forward by the landlord.
- Notify the landlord of intention to include a provision repudiating the lease in the Rescue Plan and inform them of their right to participate at the meeting or file an objection.
- Creditor objection to the Rescue Plan.
- The creditor must set out the grounds of the application in court which must have been specified in advance in a notice of objection. The grounds must include unfair prejudice, inequitable or put forward for an improper purpose.
- Where a creditor files a notice of objection the burden of proof is on the Process Advisor which ensures that the scheme cannot fail by simply lodging an objection.
- If the objection is upheld, the scheme must be modified otherwise it will fail.
- If the scheme is objected to but the Process Advisor can prove that the creditors would fair worse under a liquidation scenario it is unlikely that the Court would uphold the objection.
- If the objection is dismissed the Rescue Plan comes into effect immediately
Key observations and considerations
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