SCARP - Is it the cheaper, quicker and more efficient restructuring process for SME’s?

Small Company Administrative Rescue Process (SCARP) was introduced to provide a restructuring option to SME’s, akin to the Examinership process, but, quicker, more cost-effective and without requiring the close oversight of the Court.  SCARP is an accessible restructuring option for SME’s however it is yet to be determined if it will be a successful restructuring tool for SME’s. Key highlights are summarised below:

How does SCARP work:

• A company can restructure through SCARP, including compromising its debts, without any need for Court approval. This is subject to certain provisos, such as no creditor objecting to the proposal
• The process can conclude within 7 weeks, however, if a creditor objects and Court approval is required the process will take 10 weeks (vs 100-150 day Examinership period)
• Certain debts can be excluded (Revenue, State and Department of Social Protection) but only where there is concern that SCARP is being used for tax avoidance
• SCARP includes a mechanism that allows for the repudiation of onerous leases

Who can avail of SCARP:

98% of Irish companies

• SCARP is designed for small and micro companies, which account for 98% of companies in Ireland

Companies that are unable or likely to be unable to pay their debts as and when they fall due

• SCARP is aimed for small and micro companies that are insolvent or likely to become insolvent, but have a viable prospect of survival

Any company not in liquidation

• Any company not in liquidation can avail of SCARP.  Where a receiver or provisional liquidator is appointed, the Process Advisor may apply to Court to stand down the receiver / liquidator if they believe the Company has a reasonable prospect of survival.  Unlike Examinership, there is no time period restricting when a receiver can be stood down

Excludable Creditors & Lease Holders

Excludable Creditors – Preferential Creditors

• Provides that State creditors may be excludable from the process only on limited and specified grounds, primarily aimed at prohibiting tax avoidance

Lease Holders – Onerous Leases

• Onerous leases can only be repudiated where the Lease Holder consents. Without such consent, and where repudiation is necessary for the survival of the company, an application to Court is required

The Process

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