Minister Troy publishes General Scheme for Small and Micro Business Administrative Rescue Process 3 June 2021

From Department of Enterprise, Trade and Employment 

Published on 11 May 2021

Last updated on 11 May 2021

• addresses the need for a simplified restructuring process for viable small companies that is timely and cost effective
• mirrors key elements of existing examinership framework in an administrative context
• process commenced without the need for Court approval
• Bill also gives permanent statutory footing for virtual AGMs

Minister for Trade Promotion, Digital and Company Regulation, Robert Troy TD, today announced he has secured government approval for the priority drafting of the Companies (Small Company Administrative Rescue Process and Miscellaneous Provisions) Bill 2021. The Bill amends the Companies Act 2014 to provide for a new dedicated rescue process for small and micro companies.

While Ireland’s current rescue framework, examinership, is internationally recognised and successful in its own right, the associated costs mean it may be beyond the reach of small and micro enterprises. The Bill ensures these companies will have access to an alternative framework, which incorporates key elements of the existing examinership model in an administrative context.

Announcing the General Scheme, Minister Troy stated:

"We are all aware of the enormous pressure business owners currently face in terms of not only their immediate liquidity, but also the sustainability of their business into the future. This is particularly true of small and micro companies, with 78% operating in sectors which have been particularly challenged by the pandemic such as retail, hospitality and the service industry. Our response to the crisis has proven successful in mitigating the immediate impact of the pandemic on the sector. However, as the economy re-opens, we must have an appropriate regulatory response which supports fundamentally viable companies to continue to trade and get themselves back on their feet.

"I know that examinership works and saves both companies and employment. However, as it is overseen by the Court from beginning to end, it can be an expensive undertaking – and thus out of reach for your average small company, whether that be a local restaurant or hairdresser.

"The Companies (Small Company Administrative Rescue Process and Miscellaneous Provisions) Bill provides an alternative to examinership, for the benefit of small and micro companies, which is more cost efficient and capable of conclusion within a shorter period of time."

The main provisions of the Bill can be broadly summarised as follows:

• designed for “small” and micro companies (as defined by the Companies Act 2014) which represent 98% of companies in Ireland
• commenced by resolution of directors rather than by application to Court
• concluded within a shorter period than examinership
• overseen and assisted by insolvency practitioners – a ‘Process Advisor’
• the rescue plan can be passed by a simple majority in value of creditors
• provides for format of cross class cram down of debts designed to reduce costs
• does not require application to Court for approval of rescue plan (provided no creditor objections)
• gives safeguards against irresponsible and dishonest director behaviour

The Small Company Administrative Rescue Process (SCARP) seeks to mirror key elements of examinership in an administrative context thereby reducing court oversight resulting in efficiencies and lower comparable costs. It has limited court involvement where creditors are engaged in the process and positively disposed to a rescue plan.

Minister Troy continued:

"We set ourselves an ambitious task in developing SCARP over a compressed period of time. Throughout the process we have had strong engagement with the Company Law Review Group, Revenue Commissioners, Department of Social Protection and Department of Justice as well as other relevant stakeholders, and through the public consultation launched earlier this year.

"While court involvement is limited, I am conscious the issue of corporate rescue extends far beyond the distressed company itself and as such, the process incorporates robust safeguards and reflects what I believe to be a fair balance of the sometimes, competing interests of stakeholders. For example, state creditors will operate on an “opt-out basis” on prescribed grounds such as if the company has a poor history of tax compliance. This should provide comfort to business that the State will not remove itself from the process for arbitrary reasons.

"Small and micro companies’ contribution to our economy cannot be understated. They represent the majority of companies in Ireland and employ in the region of 788,000 workers. The sector will be key to our country’s economic recovery. It is for this reason that I am so committed to providing a genuine alternative for these companies. As we reopen the economy, I want these businesses to know that Government values their contribution and is committed to supporting their long-term viability."

The Bill also makes miscellaneous amendments to the Companies Act 2014 and Industrial and Provident Societies Act 1893 to make permanent provision for virtual meetings. It further amends the Companies Act 2014 to progress recommendations made by the Company Law Review Group in relation to the provision of information to employees as creditors during a liquidation.

Notes

Background

As part of the government’s medium-term stabilisation response to the economic challenges of the pandemic, and in keeping with commitments contained in the Programme for Government, the Companies (Small Company Administrative Rescue Process and Miscellaneous Provisions) Bill 2021 provides for a stand-alone rescue framework for small and micro companies. It is recognised that Ireland’s existing framework, examinership, while internationally recognised and successful in its own right, may be beyond the reach of small companies due to the associated costs. In this regard, the Tánaiste wrote to the Company Law Review Group (CLRG[1]) requesting it to examine the issue of rescue for small companies and make recommendations as to how such a process might be designed. The General Scheme of the Bill emanates from the CLRG’s subsequent recommendations.

SCARP seeks to mirror key elements of examinership in an administrative context thereby reducing court oversight resulting in efficiencies and lower comparable costs. It has limited court involvement where creditors are engaged in the process and positively disposed to a rescue plan.

[1] The CLRG is a statutory advisory body charged with advising the Tánaiste on all matters pertaining to company law in the public interest. Membership of the CLRG is representative of the broad range of company law stakeholders making it uniquely well positioned to provide a nuanced view on the issue of rescue for small companies.

Features of the Bill

The main provisions of the Bill can be broadly summarised as follows:

• available to small and micro companies (as defined by the Companies Act 2014)
• commenced by resolution of directors rather than by application to Court
• an insolvency practitioner (who must be qualified to act as liquidator under the Companies Act) is appointed by the company to begin engagement with creditors and prepare a rescue plan. The rescue plan must satisfy the ‘best interest of creditors’ test and provide each creditor with a better outcome than a liquidation. In addition to this, no creditor may be unfairly prejudiced by the plan. This is in keeping with established principles under examinership
• creditors are invited to vote on the rescue plan by day 42 of the insolvency practitioner’s appointment. The proceedings in relation to the required meetings of creditors are in keeping with existing provisions of the Companies Act
• the rescue plan is approved without the requirement for Court approval provided that a majority in value of an impaired class of creditors vote in favour of the proposal and no creditor raises an objection to the plan within the 21-day cooling off period which follows the vote. The approval mechanism is drawn from examinership and provides for a cross class cram down. This means that where one class of impaired creditor votes in favour of the plan, this decision can then be imposed on all classes of creditors
• where an objection to the rescue plan is raised, there is an automatic obligation on the company to seek the Court’s approval. This acts as a safeguard for creditors
• concluded within a shorter period than examinership (examinerships can currently run for up to 150 days, SCARP seeks to arrive at a conclusion within 70 days, subject to extension where necessary for Court applications)
• has safeguards against irresponsible and dishonest director behaviour. Company directors will be subject to the existing restriction and disqualification regime provided for under the Companies Act. The Office of the Director of Corporate Enforcement (ODCE) also has a suite of powers to examine books and investigate, as appropriate, in line with that which is provided for in relation to liquidations, receiverships and examinerships
• provides that State creditors, the Department of Social Protection and the Revenue Commissioners may be excludable from the process. This means they may determine to “opt out” of the process on the basis of statutory grounds, for example if the company has a poor history of tax compliance

SCARP also incorporates sufficient safeguards for the protection of creditors:

• as there is no automatic stay on proceedings, creditors are not impaired by virtue of entry to the process
• creditors are afforded an opportunity to provide input to the process advisor (insolvency practitioner) upon his or her appointment to disclose any facts they consider material to the process
• there are various enforcement provisions in relation to failure to comply with filing, notice and information obligations
• the process advisor will be subject to the same reporting requirements as a liquidator
• the current requirements in respect of restriction applications will also apply

The Bill also makes miscellaneous amendments to the Companies Act 2014 and Industrial and Provident Societies Act 1893 to make permanent provision for virtual meetings which were introduced on a temporary basis by the Companies (Miscellaneous Provisions) (Covid-19) Act 2020. It further amends the Companies Act 2014 to progress recommendations made by the Company Law Review Group in relation to the provision of information to employees as creditors in a liquidation. It amends the Act to clarify that liquidators have the power to bring and defend proceedings in the Workplace Relations Commission (WRC) and provides a dedicated position for an employee representative on the committee of inspection set up to oversee a liquidation.

The General Scheme of the Bill is being published on the Department of Enterprise, Trade and Employment’s website.

The Department of Enterprise, Trade and Employment (DETE) plays a key role in implementing the government’s policies of stimulating the productive capacity of the economy and creating an environment which supports job creation and maintenance. The department has lead responsibility for Irish policy on global trade and inward investment and a remit to promote fair competition in the marketplace, protect consumers and safeguard workers.

For further information please contact Press Office, D/Enterprise, Trade and Employment, press.office@enterprise.gov.ie or (01) 631-2200.