New Restructuring Scheme To Help Small Businesses
Several airlines have recently used Ireland’s examinership scheme to their advantage. For smaller firms, SCARP may be the better option, writes Beauchamps partner Barry Cahir
Despite the impact of lockdown, Ireland’s real GDP is estimated to have grown by 3% in 2020. This growth was largely due to exports from multinationals specialising in medical equipment, pharmaceuticals and computer services.
There was a 30% decrease in the number of insolvencies this year when compared with the same time last year. It is suggested that government support and creditor forbearance explain these figures, despite the closure of many companies for several months.
SCARP SCHEME
It is clear that a chaotic insolvency pandemic after the public health pandemic is not desirable, but the true impact of Covid-19 on Irish companies is unknown until restrictions are lifted and economic supports withdrawn. The government has committed that when it does, we will have legislation in place that will allow for a new restructuring procedure called The Small Company Administrative Rescue Process (SCARP). It is aimed at companies that fulfil two or more of the following requirements:
The company turnover does not exceed €12 million.
The balance sheet total of the company does not exceed €6m.
The number of employees does not exceed 50.
SCARP will be a simplified, largely out of court process, specific to small companies and mirroring key elements of examinership. This new legislation should help the many small and micro companies that have been severely impacted by Covid-19, and for whom the costs of examinership may be out of reach. The success of SCARP will depend on some issues being ironed out. Currently, there is a suggestion that Revenue debt and leases/rent cannot be impacted, which will undoubtedly limit its effectiveness.
RESTRUCTURING HUB
In response to Brexit, Ireland has been successfully asserting itself as a global hub for a range of services. This pitch includes legal and restructuring services, given the desirability of a unitary process or jurisdiction to give effect to a multinational restructuring. The tools, such as examinership, have always been there and have been showcased successfully in a number of recent high-profile aviation cases.
A recent case was Norwegian Air. The successful examinership cleared the way for the company to raise new capital of €440m to support its trimmed-down business, focusing primarily on Nordic and European routes. The choice of Ireland for this restructuring was surprising to many, but the undisputed evidence before the court was that six of the companies had their registered office and Centre of Main Interests (COMI) in the state, and that NAS (which did not have its COMI in the state) had a ‘sufficient connection’ that permitted the court to exercise its jurisdiction, in favour of appointing the examiner to that company.
CityJet DAC successfully exited examinership in August 2020. CityJet is a wet-lease specialist airline operating regularly scheduled routes.
It employed 1,175 people before the Covid-19 crisis, 410 of whom were based in Dublin. CityJet had debts of €500m and a net deficit on a going concern basis of €186m. The High Court also approved Nordic Aviation Capital’s (the world’s largest regional aircraft lessor and a leader in commercial aircraft leasing) scheme of arrangement, which restructured more than €5bn of its debt with over 85 lenders.
When you consider this in context, and layer in transactions such as AerCap acquiring GECAS, we can expect more international restructuring in this sector, which may be anchored in Ireland.