SCARP - A welcome addition to the Restructuring Toolkit

Smith & Williamson is preparing to assist companies engage with the upcoming Small Company Administrative Rescue Process, writes Stephen Scott, Head of Restructuring & Recovery Services

The requirement for further reform of Irish corporate rescue mechanisms has been put into sharp focus by the current Covid-19 crisis. While existing non-formal operational or financial restructuring options may be sufficient for many affected businesses, post-pandemic the worst impacted but still viable companies will turn to formal rescue processes to try to ensure their survival. However, the need for a suitable rescue mechanism for small companies which is less costly than Examinership, but more practical and effective than a Scheme of Arrangement, has long been recognised.

The introduction of so called ‘Examinership Lite’ a number of years ago, which allowed companies to apply to the Circuit Court (as opposed to the High Court) for the appointment of an Examiner, was really a misnomer, as it did nothing to reform the underlying process. Any gains from the Circuit Court application were probably outweighed by practical inefficiencies.

Introduction of SCARP

Consequently, the timely proposed introduction of the Small Company Administrative Rescue Process (SCARP) later this year — which will represent a true Examinership Lite — is welcome. Although following further consultation, a number of significant amendments could yet be made, we now have a much clearer picture of what the process will look like.

Positive aspects include the out-of-court commencement process by resolution of the directors; a shorter timescale than Examinership (not exceeding 70 days subject to no court applications being made); the simple majority in value voting thresholds; and the appointment of a ‘Process Advisor’ to bring independent oversight to the procedure. Additionally, similar to Examinership, the ability to repudiate contracts is contained in the Bill.

Some areas of the proposals have drawn criticism. However, amendments may still yet be made when the full Bill is published, during its passage through the Oireachtas or, as is common with the introduction of new processes, post implementation when a number of practical teething issues may have to be addressed.

Separately, it appears the SCARP Act will also include additional miscellaneous provisions to make practical Covid-related temporary measures permanent, such as the ability to hold Creditors’ Meetings by virtual means.

Small business ‘shot in the arm’

As we emerge from the pandemic during the remainder of 2021 and normal commercial activity resumes, government supports will over time be withdrawn and creditor forbearance will run out. Consequently, small business owners still standing will be looking to implement strategies to ensure the survival of their companies into the future, putting the effects of the current crisis behind them.

Having seen the apparent success of the accelerated development and roll-out of the various vaccines, that should in time bring the health crisis to an end, there will be a hope and expectation that this potential ‘shot in the arm’ for ailing small businesses will be introduced as soon as possible and with similar levels of efficacy.

Success factors for restructuring

Whether undertaking non-formal operational and financial restructuring, or utilising formal procedures such as SCARP or Examinership, the same key factors will apply to increase the likelihood of success. These include early engagement with advisors, communication with key stakeholders, and ensuring high quality up-to-date accounting information is readily available.

Therefore, following the publication of the Company Law Review Group report, and more recently the heads of the SCARP Bill, Smith & Williamson has provided updates to our clients, had initial training sessions, and we have made amendments to our Examinership work packs and templates in anticipation of the first SCARP applications, probably in Q4 of this year.

For more information on how we can help you and your business navigate these uncertain times, please contact Stephen Scott, Head of Restructuring & Recovery Services. Email: stephen.scott@smithandwilliamson.com or any of the Smith & Williamson Team.