A Small Company Administrative Rescue Process (“SCARP”) is a formal insolvency process which enables a restructuring of a business operation by way of a compromise arrangement
between a company and its creditors where a proportion of debts are often written off and the company agrees to pay back a lower proportion of the remaining debt.

It’s a way for a company to remain trading and restructure itself to hopefully come out stronger and more profitable at the end of the process.

Once approved it is legally binding on all creditors.

For a company to avail of the new process the must meet the following eligibility criteria

• Be a micro, small or medium sized company
• Be unable or likely to be unable to pay debts
• Not be in liquidation nor has an order been made for the winding up of the company
• Not having used the process in previous 5 years
• No examiner has been appointed in the past 5 years

• The directors retain control of the company and it can continue trading;
  SCARP’s have lower costs than alternative insolvency rescue procedures like Examinership;
• It may be possible to terminate onerous contracts as part of the SCARP proposal, including leases
• It is a better alternative to liquidation as the Company return must be better in order for a SCARP to be proposed;
• Since the company has avoided liquidation, there’s no requirement for directors conduct to be investigated;
• The Insolvency Practitioners’ fees are included within the agreed fixed repayment amount each month;

Step 1 In order to enter the process, the company will engage an Independent Insolvency Practitioner to act as a “Process Advisor”.

Step 2: Prepare a Statement of Affairs

Having identified the need to enter the process and having engaged a suitable Process Advisor, the directors of the company will, prepare a Statement of Affairs in a prescribed form.

Step 3: The Process Advisors Report

The Process Advisor will then then issue a report on whether the company in their opinion has a reasonable prospect of survival and whether a SCARP should be undertaken

Step 4: The Board Meeting

In order to formally commence the SCARP, the Directors of the Company will call board meeting within 7 days of receiving the Process Advisors report at which they will pass a resolution to commence the process.

Step 5: Process Advisor engagement

Creditors are then informed of the process and are sent the Statement of Affairs and the Process Advisor’s Report.

Creditors will also receive a Proof of Debt form which needs to be sent back within 14 days.

During this period, creditors are afforded an opportunity to provide input to the process advisor and to disclose any facts they consider material to the process.

Step 6: The Process Advisors Rescue Plan

The Process Advisor having reviewed the Company’s financial circumstances and consulted with stakeholders including directors, creditors and shareholders, will prepare a draft rescue plan.

In terms of this plan, which is in simple terms, an agreement between a company and its creditors to settle company debts. There are:

• No prescribed components or exclusions.
• No creditor may be unfairly prejudiced.

Critically the plan must satisfy ‘best interest of creditors’ test (i.e. provide each creditor with a better outcome than a liquidation).

In terms of the approach the Process Advisor’s rescue plan can take, there is no express limitations.  In this regard,

• Debts can be written down.
• Different classes of creditors receive different treatment.

For example, whilst in Examinerships, creditors are normally settled with a “lump sum”, Companies could pay creditors over a period in a SCARP, of say, three years.

Step 7: Rescue Plan Approval

Having formulated a rescue plan, the Process Advisor summons meetings of members and each class of creditor within 42 days of their appointment. Facilitating a timely process, notices may be sent by email.

Creditors are invited to vote (having been provided with 7 days-notice) on the plan by day 49.

For the Rescue Plan to be approved by Creditors there must be a 60% majority in number and a SIMPLE majority of value in respect of at least one class of creditors.

Such approval of one class of creditor voting in favour of the rescue plan will result in it been binding on all creditors.

If there is no objection to the plan and it is approved by creditors there is no requirement to obtain Court approval and the plan becomes binding 7 days after Statutory notices are filed unless objected to within 21 days.

The Process Advisor must have the same qualifications for appointment as a liquidator as under the Companies Act 2014. i.e.

1. Member of Prescribed Accountancy Body
2. Practising Solicitor
3. Member of Professional Body recognised by IAASA
4. Person qualified under the laws of other EEA state
5. Person of practical experience

As with other insolvency procedures, the company’s existing Auditor/Accountant cannot act as Process Advisor for reasons of independence etc.

Friel Stafford has three Process Advisors who have advised over 2,000 insolvent companies in the past 25 years.

If you believe you will end up needing a SCARP then you should consider if you need to take preparatory steps now. The steps to be taken will depend on the specific circumstances facing your company. Such steps might include some of the following:

• Implementing a “pay freeze” in respect of certain creditors
• Implementing a redundancy programme
• Surrendering leases to landlords
• Obtain valuations of buildings, plant & machinery.
• Bring management accounts up to date,
• Submit all tax returns. In particular, ensure that you have adjusted your VAT returns if you have not paid a supplier within the required 6 months.
• Commence preparing a pack of information for the Insolvency Practitioners such as: a brief history of the company, an organisation chart, summaries of property leases and finance leases, summary of employees salaries and employment history, excel spreadsheet of all creditors to include postal and email addressees, cash flow forecasts and trading forecasts.
• Appoint an experienced Insolvency Practitioner to guide you through the process.

We can provide expert advice on all necessary steps, including how to communicate with creditors.

For information on Turnaround, Schemes of Arrangement, Receivership, Examinership or Creditors Voluntary Liquidation please click on the following links:

• Turnaround
• Schemes of Arrangement
• Receivership
• Examinership
• Creditors Voluntary Liquidation

We have established three SCARP teams, headed up by three qualified and registered insolvency practitioners. Jim Stafford, Tom Murray and Andrew Hendrick, to advise companies on SCARP. We are currently signing up clients and providing preparatory advice as to what steps companies should be taking now.

For further information please email either jim.stafford@frielstafford.ie tom.murray@frielstafford.ie or andrew.hendrick@frielstafford.ie