SCARP: Company and Director’s Perspective

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The Small Company Administrative Rescue Process (SCARP) supports directors of SMEs in restructuring their respective companies in an efficient and cost-effective manner, thereby enabling them to continue to trade.

Previously, traditional small- and medium-sized enterprise (SME) restructuring options available to directors were limited to examinership. However, many directors considered the process too expensive and onerous because of the requirement for Court involvement, so it never received the appropriate amount of engagement required to be a successful solution. Many directors saw liquidation as the only realistic option.

What does SCARP do?

Provides the company with protection from creditors (where the Court approves) while a restructuring plan is prepared;
Enables restructuring of the balance sheet and write down of creditors;
Allows for repudiation of onerous leases; and
Returns small- and microcompanies to solvency, thereby enabling them to continue to trade.

Key points for directors considering SCARP

SCARP can be an efficient and expeditious method of restructuring your company’s business.

Small companies must satisfy two of the following three criteria:

turnover less than €12m;
balance sheet less than €6m; and
less than 50 employees.

Micro companies must satisfy two of the following three criteria:

turnover less than €700,000;
balance sheet less than €350,000; and
less than 10 employees.

Directors must prepare a Statement of Affairs and engage a Process Advisor (PA), who must be a qualified to act as a liquidator, to prepare a report confirming that the company has a reasonable prospect of survival.

The PA and directors must prepare a Rescue Plan, which can:

provide for the write-down of liabilities and
provide for the termination of existing onerous contracts, such as leases, once either the contract holder’s consent or Court approval is obtained.

The SCARP process can conclude within 10 weeks if approved by creditors and no objections are filed. If an objection to the Rescue Plan is filed, Court approval is required, and there is no set timeframe for approval.

What should the rescue plan include for success?

Evidence that the company has a reasonable grounds for survival;
Evidence that the plan is fair and equitable; and
Evidence that the creditors receive a better outcome fromthe plan than they would through the winding up of the company.

Revenue and Excludable Debts

Provides that State creditors, the Department of Social Protection and the Revenue Commissioners may be excludable from the process only on limited and specified grounds, primarily where there is cause for concern that a company is abusing the process for the purposes of tax avoidance.
For debts to be excludable the creditor must confirm to the PA that they are objecting to their debt being compromised.
Directors should be mindful where their tax returns are outstanding, there is an ongoing tax audit or there is a history of non-compliance with tax obligations , Revenue may not support the proposed Rescue Plan.

The Corporate Enforcement Authority’s (CEA) Role

Company directors will be subject to the existing restriction and disqualification regime provided for under the Companies Act.
The CEA also has a suite of powers to investigate and examine the books and records of the company, similar to that which is provided for in liquidations, receiverships and examinerships.
This provision acts as a safeguard against irresponsible and dishonest director behaviour. Directors need to be mindful that restructuring under SCARP will not absolve them of any non-compliance with their statutory duties and obligations under the Companies Act.

Advice for Pursuing SCARP from a Process Advisor

Stakeholder engagement

Early advice is crucial to ensuring your company’s future. Where cash flow or liquidity is a concern, seek advice from a professional advisor at the earliest opportunity.
Regular review

Review your company financials regularly and ensure you have a robust three-way model, including a profit and loss, balance sheet and cash flow forecasts.
Engage with your creditors

Communication with all your creditors is key to ensure they will support any potential restructure.