Business Plus

Editor’s Note

- Nick Mulcahy Editor

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.

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Coming to the rescue
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