Restructuring

Small Company Administrative Rescue Process (SCARP): Restructuring for SMEs

By:

Nicholas O’Dwyer,

Colm Dolan

30 Jan 20255 min read

The Small Company Administrative Rescue Process (SCARP) was introduced to provide an affordable restructuring option to directors in the SME sector.

Contents

The SCARP process is similar to the Examinership process, however it is quicker, more cost effective and does not require the close oversight of the Courts.

SCARP is targeted at directors of SME’s as a means to restructure their creditors and attract investment, thereby enabling them to continue to trade and avoid liquidation.

What does SCARP enable?

It allow the directors focus on trading the company
Provides the company with protection from its creditors (where the Court approves) while a rescue plan is prepared
Restructuring of the balance sheet and write down of creditors, to support investment into the company, as required
Repudiation of onerous leases (subject to consent or Court approval)
Returns the company to solvency with the support of its creditors

Who can avail of SCARP?

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

Small companies*	Micro companies*
turnover less than €15m; balance sheet less than €7.5m; and less than 50 employees.	turnover less than €700,000; balance sheet less than €350,000; and less than 10 employees.
*must satisfy two of the three criteria

The relevant company must:

Be unable or likely to be unable to pay their debts as and when they fall due; and
Not be in liquidation.

Overview of the SCARP process

01 Statement of Affairs (SOA)

Company directors prepare SOA for the Company.

02 Process Advisor (PA) provides report on survival prospects

PA must review the SOA and issues a report confirming that the Company has a reasonable prospect of survival from SCARP.

03 Initiate SCARP (Day 1)

Company directors meet to formally appoint the PA and commence the process.

04 Preparation of Rescue Plan (Day 2 - 42)

PA undertakes a review of the company. investigates its affairs and consults with creditors to prepare and draft the Rescue Plan.

05 Assessment of Excludable Creditors

Excludable creditors must be identified by the PA and notice served to them without delay that the process is intending to compromise their debt, along with other creditors.

06 Meeting of Members and Creditors (Day 42)

Meetings of Members and Creditors are required to be held to consider and approve or object to the Rescue Plan.

The Rescue Plan is deemed to have been accepted when 60% in number, representing the majority in value, of an impaired class of creditor vote in favour of the plan; unless a creditor objects within 21 days of creditor approval and files a formal objection to the Rescue Plan

07 Confirmation Hearing

If the plan is not approved during the meetings of Members and Creditors the PA must apply to the Court to have the Rescue Plan confirmed and must satisfy the Court that the rescue plan is fair and equitable and does not unfairly prejudice the objecting creditor. If this can be evidenced, the Court will approve the Rescue Plan

Key points for directors considering a SCARP

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

For the Rescue Plan to be successful it must evidence:

That the company has a reasonable grounds for survival
That the plan is fair and equitable
The creditors receive a better outcome from the plan than they would through the liquidation of the company

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

SCARP legislation provides both the Department of Social Protection and the Revenue Commissioners an option, in certain circumstances, to exclude their debts from being written down.

In this regard, their right to opt out is on limited and specified grounds, including where the company is not compliant with its tax filing obligations or there is cause for concern that a company may be using the process for the purposes of tax avoidance.

Directors therefore need to review and be mindful of their tax compliance and obligations when considering a SCARP.

Dealing with secured creditors and lease holders in a SCARP

There is no automatic stay on proceedings against the company under SCARP, however, a PA can apply to the Court for a stay if required for the survival of the company. A creditor is therefore unlikely to be able to initiate proceedings or take enforcement action against a company availing of SCARP.

SCARP includes a mechanism whereby the PA can apply to Court for the repudiation of an onerous lease or contract when a consensual agreement with the counterpart cannot be reached. The Court shall only grant approval for repudiation of a contract where such approval is considered necessary for the survival of the company.

How Grant Thornton can help you

We bring together a combination of business management, contract negotiation, tax, accounting and company law knowledge to prepare our rescue plans and run our SCARP processes. We have advised many clients on restructurings of all sizes and in all sectors of the Irish economy.

Our SCARP specialists will guide you through every step of the process and will;

Assessing the options available to the company and if SCARP is the best option;
Act as Process Advisor for the company;
Assist in creditor and investor negotiations;
Prepare a tailored rescue plan for the business that will ensure the company’s survival; and
Provide you with continued support, guidance and best in class service needed to successfully navigate the restructuring process.

Our services

Learn more about how our Small Company Administrative Rescue Process (SCARP) solutions can help you

Visit our Small Company Administrative Rescue Process (SCARP) page