Robert Troy, Minister for Trade Promotion, Digital & Company Regulation, deserves credit for rapidly progressing legislation that provides a framework for the new Small Company Administrative Rescue Process. SCARP mirrors elements of the existing examinership set-up but with lower costs. A key difference is that under SCARP a company doesn’t have to prove to a judge that it has a reasonable prospect of survival.
Another difference is that a company can call in an insolvency professional (the ‘process advisor’) to devise a rescue plan without court oversight. The survival scheme is then voted on by creditors, with a 60% majority required for it to be implemented. Where an objection to the rescue plan is raised, there is an automatic obligation on the company to seek court approval.
Despite 16 months of trading restrictions that have decimated the income of tens of thousands of small and micro firms, insolvencies are below normal levels. In the view of restructuring experts (see page 36), this is down to the plethora of government supports and warehousing of tax debt by Revenue. Most of those balance sheet props will remain in place at least until the end of 2021 (see page 6), at which point the professionals expect that reality will have to be confronted.
Aiden Murphy at Crowe is an enthusiast, noting that SCARP will be affordable for most businesses. “It will be a very welcome addition to the toolkit of insolvency practitioners. We expect the process to be used extensively to help purge balance sheets of unaffordable creditor debts, making them attractive again for renewed investment,” he says.
Troy’s Bill provides for an opt-out for the Revenue Commissioners and other state creditors for ‘excludable debt’. This means the taxman can’t be crammed down just because 60% of other creditors concur on the rescue plan. SCARP does provide for repudiation of leases, but this is subject to court oversight. So for a distressed company burdened by tax debt and rent arrears, SCARP may not be much use.
PwC’s Declan McDonald notes that varying lease terms generally ends up in court. “If you also have tax debt and Revenue may opt out of the process, you might wonder what the point is. SCARP certainly streamlines the rescue process but there is a cost, and investment will have to be sourced to come out of the process. It’s not just the case that you can walk away from certain liabilities and carry on regardless,” says McDonald.
Like his restructuring colleagues, McDonald wants SCARP to succeed. It’s a long overdue step towards intervention and company rescue, rather than the culture that has pertained until now of sending companies to the scrap heap through liquidation.