- Bill provides for a Small Company Administrative Rescue Process (SCARP) that mirrors key elements of existing examinership framework in an administrative context
- The proposed process will be cost efficient and capable of conclusion within a shorter period of time than examinership
- The Bill also makes miscellaneous amendments to the Companies Act to enhance the rights of employees in liquidations
Tuesday, 13 July 2021
The Minister for Trade Promotion, Digital and Company Regulation, Robert Troy T.D. today (13 July, 2021) welcomed the passing of the Companies (Rescue Process for Small and Micro Companies) Bill 2021 through all legislative stages in the Oireachtas. The Bill will now be sent to Office of the President for signature and enactment into law.
The Bill amends the Companies Act 2014 to provide for a new dedicated rescue process for small and micro companies. The Bill delivers on an important Programme for Government commitment and ensures that these companies now have access to a new rescue framework; the Small Company Administrative Rescue Process (SCARP).
The administrative rescue process mirrors key provisions of the existing examinership process including the repudiation of onerous contracts, cross-class cram down of debts, and encourages ongoing creditor engagement. The process also allows companies to apply for a stay on proceedings. The Small Company Administrative Rescue Process is designed to be more cost efficient and capable of conclusion within a shorter period of time.
Announcing the passage of the Bill, Minister Troy, said:
“I am pleased to announce that the Companies (Rescue Process for Small and Micro Companies) Bill 2021 has now successfully passed all stages in both Houses of the Oireachtas, where it received overwhelming support, and will shortly become law.
“Over the past year, this Government has focussed on supporting businesses and ensuring jobs were protected through what has been a very difficult year. We quickly recognised that additional measures would be necessary to support businesses in the face of the rapidly evolving Covid-19 crisis. We set our sights on a proactive and comprehensive review of the regulatory framework for the rescue of viable small and micro companies and an assessment of all available policy options to enable these companies to continue in business and return to full operation and profitability.
“This Bill is the culmination of a year-long effort to ensure that we have in place the necessary legal framework to help viable companies stay in business as we emerge from the pandemic. The Bill provides for a streamlined, workable and practical process to allow these companies restructure and continue to trade. It is built on a tried and tested framework, examinership, and with the benefit of input from business, trade unions, insolvency practitioners and legal practitioners. It is clear from the broad welcome of the Bill that our approach was correct and strikes a fair balance between stakeholders affected by corporate rescue.
“The Bill also provides for amendments arising from the Company Law Review Group’s first phase of work in the area of employees’ rights as creditors under the Companies Act, in line with the recently published Plan of Action on Collective Redundancies following Insolvency. The plan has been broadly welcomed by the social partners and in particular the Irish Congress of Trade Unions. I am grateful to all involved for their constructive engagement in this space and look forward to our continued work together.
“Delivering the Bill in advance of the summer recess was an ambitious task and would not have been possible were it not for the support of all members of the Oireachtas. It is a real demonstration of what can be achieved when we engage constructively and pragmatically for the benefit of our country.
“I was committed to passing this legislation in advance of the summer recess and I hope it will be of comfort to the many viable small businesses that a cost-effective corporate rescue process will now be available to them to help them stay in business. As a result of the timely passage of this Bill, we are now in a position to commence work immediately on the necessary regulations, forms, and Rules of Court to complement the new process and ensure that it is made available to businesses at the earliest possible opportunity.
“I want businesses to know that this Government is committed to supporting their long-term viability and I want their employees to know that we are committed to supporting their jobs.”
Notes to Editors
As part of the Government’s medium-term stabilisation response to the economic challenges of the pandemic, and in keeping with commitments contained in the Programme for Government, the Companies (Rescue Process for Small and Micro Companies) Bill 2021 provides for a stand-alone rescue framework for small and micro companies. It is recognised that Ireland’s existing framework, examinership, while internationally recognised and successful in its own right, may be beyond the reach of small companies due to the associated costs. In this regard, the Tánaiste wrote to the Company Law Review Group (CLRG) requesting it to examine the issue of rescue for small companies and make recommendations as to how such a process might be designed. The General Scheme of the Bill emanated from the CLRG’s subsequent recommendations. Since Government approval of the General Scheme an intensive drafting process was carried out resulting in the Companies (Rescue Process for Small and Micro Companies) Bill 2021.
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.
Features of the Bill
The main provisions of the Bill can be broadly summarised as follows:
- Available to small and micro companies (as defined by the Companies Act 2014).
- Commenced by resolution of directors rather than by application to Court.
- 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. In addition to this, no creditor may be unfairly prejudiced by the plan. This is in keeping with established principles under examinership.
- Creditors are invited to vote on the rescue plan by day 49 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 approved without the requirement for court approval provided that 60% in number representing the majority in value of claims of an impaired class of creditors vote in favour of the proposal and no creditor raises an objection to the plan within the 21-day cooling off period which follows 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 plan, this decision can then 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 the court’s approval. This acts as a safeguard for creditors.
- Repudiation of onerous contracts, including leases, is provided for subject to court oversight as appropriate.
- Concluded within a shorter period than examinership (examinerships can currently run for up to 150 days, SCARP seeks to arrive at a conclusion within a shortened timeframe, subject to extension where necessary for court applications),
- Has safeguards against irresponsible and dishonest director behaviour. The process will be within scope of existing reckless trading provisions. The Director of Corporate Enforcement 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.
- Includes State creditors such as the Department of Social Protection and the Revenue Commissioners. They may opt out of the process on specified statutory grounds.
SCARP also incorporates sufficient safeguards for the protection of creditors:
- As there is no automatic stay on proceedings, creditors are not impaired by virtue of entry to the process,
- Creditors are afforded an opportunity to provide input to the process advisor (insolvency practitioner) upon his or her appointment to disclose any facts they consider material to the process,
- There are various enforcement provisions in relation to failure to comply with filing, notice and information obligations.
The Bill also includes miscellaneous provisions amending company law in line with the recently published Plan of Action on Collective Redundancies following Insolvency.
The Department of Enterprise, Trade and Employment (DETE) plays a key role in implementing the Government’s policies of stimulating the productive capacity of the economy and creating an environment which supports job creation and maintenance. The Department has lead responsibility for Irish policy on global trade and inward investment and a remit to promote fair competition in the marketplace, protect consumers and safeguard workers.
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