SCARP - The Company and Director’s Perspective

Previously, traditional SME restructuring options available to directors was limited to Examinership, however, this process never got the required traction as it was considered too expensive and onerous due to the requirement for Court involvement.  Liquidation was therefore the only alternative option for a director.  The Small Company Administrative Rescue Process (SCARP) is now available and targeted at directors of SME’s to support them restructuring their respective companies and thereby enabling them to continue to trade. 

What does SCARP enable?

• Provides the company with protection from creditors (where the Court approves) while a restructuring plan is prepared
• Restructuring of the balance sheet and write down of creditors
• Repudiation of onerous leases
• Returns Small and Micro companies to solvency, thereby enabling them to continue to trade

Key points for Directors

SCARP can be an efficient and expeditious method of restructuring your company’s business

Small companies must satisfy two of the following three criteria:

• turnover less than €12m;
• balance sheet less than €6m; and
• less than 50 employees

Micro companies must satisfy two of the following three criteria:

• turnover less than €700,000
• balance sheet less than €350,000; and
• less than 10 employees

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

The SCARP process can be confirmed within 7 weeks if approved by creditors or within 10 weeks if approved by Court, if required

What must the Rescue Plan evidence for success

• 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 winding up of the company

Revenue and excludable debts

Office of the Director of Corporate Enforcement’s (ODCE) Role

• Company directors will be subject to the existing restriction and disqualification regime provided for under the Companies Act
• The ODCE also has a suite of powers to investigate and examine the books and records of the company, similar to that which is provided for in liquidations, receiverships and examinerships
• This acts as a safeguard against irresponsible and dishonest director behavior, Directors need to be mindful that restructuring under SCARP will not absolve them of any non-compliance with their statutory duties and obligations under the Company’s Act

Advice from a Process Advisor

Stakeholder engagement

Early advice is crucial to ensuring your company’s future.  Where cash flow or liquidity is a concern, seek advice from a professional advisor at the earliest opportunity

Regular review

Review your company financials regularly and ensure you have a robust three-way-model including a profit and loss, balance sheet and cash flow forecasts

Engage with your creditors

Communication with all your creditors is key to ensure they will support any potential restructure.

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