Is your company under serious financial pressure?
Are you concerned about insolvency?
Does your company have mounting debts to:
Do you think your company may be viable if those pressures were dealt with?
Is your company a micro, small or medium enterprise?
If you can answer yes to the above questions – your company may benefit from a SCARP.
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
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:
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,
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.
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:
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:
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.