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

SCARP is similar to the Examinership process but is quicker, more cost-effective, and does not require close oversight by the Courts.

It provides companies with breathing space from creditors while they undergo a restructure, enabling them to continue trading and potentially emerge stronger.

What does SCARP enable?

SCARP provides several benefits to eligible companies:

• Allows directors to focus on trading the company.
• Protects the company from creditors (where the Court approves) while a rescue plan is prepared.
• Enables restructuring of the balance sheet, including the write-down of liabilities, to support investment.
• Allows the repudiation of onerous leases (subject to consent or Court approval).
• Returns the company to solvency with creditor support.

Why is SCARP needed?

Small and micro businesses make up 98% of all companies in Ireland. Many of these businesses cannot afford the Examinership process, making SCARP a necessary and more accessible alternative. The process enables struggling companies to restructure, remain in operation, and ultimately become more financially stable.

Who can avail of SCARP?

SCARP is designed for small and micro companies that meet at least two of the following three criteria:

Additionally, the company must:

• Be unable or likely to be unable to pay its debts as they fall due.
• Not be in liquidation.

How does SCARP work?

SCARP follows a structured process, with strict timelines – the SCARP process lasts no longer than 49 days, with a 21 day cooling off period thereafter:

1. Statement of Affairs (SOA) – Directors prepare a SOA outlining the company’s financial position.
2. Process Advisor (PA) Appointment – A PA (a qualified insolvency practitioner) is appointed to review the SOA and assess if the company has a reasonable prospect of survival.
3. Initiation of SCARP (Day 1) – The PA formally begins the process.
4. Preparation of a Rescue Plan (Day 2 - 42) – The PA conducts a review, consults with creditors, and drafts a plan outlining the restructuring measures.
5. Meeting of Members and Creditors (Day 42) – Members and creditors vote on the plan. The plan is accepted when at least 60% in number, representing a majority in value of an impaired class of creditors, vote in favour.
6. Objections and Court Confirmation (up to Day 70) – If creditors object, the PA must seek Court approval to confirm the Rescue Plan.

If no objections are raised, the process can conclude within 10 weeks.

Key points for directors considering a SCARP

Directors must prepare a Statement of Affairs and engage a Process Advisor (PA), who must be 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.
• Allow 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 reasonable grounds for survival.
• That the plan is fair and equitable.
• That creditors will receive a better outcome from the plan than they would through liquidation.

The SCARP process can be confirmed within 10 weeks if approved by creditors and no objections are filed. If objections arise, Court approval is required, though there is no set timeframe for this process.

SCARP legislation allows the Department of Social Protection and the Revenue Commissioners to exclude their debts from being written down in certain circumstances. This typically applies if the company is non-compliant with tax obligations or if there are concerns about potential tax avoidance. Directors should therefore ensure they are fully compliant with tax filings when considering SCARP.

Can Revenue opt out of SCARP?

State creditors, such as the Department of Social Protection and Revenue Commissioners, can exclude their debts from the process in specific circumstances. This typically applies where there are concerns about tax avoidance or non-compliance with tax obligations.

How is a SCARP approved?

SCARP is approved when at least 60% in number, representing a majority in value of at least one class of impaired creditors, vote in favour. The approved plan can include the write-down of liabilities across all creditor classes. If a creditor objects, the PA must apply to the Court to confirm the plan, proving it is fair and equitable.

Dealing with secured creditors and lease holders in a SCARP

There is no automatic stay on proceedings against the company in SCARP. However, the PA can apply to the Court for a stay if necessary for the company’s survival. Creditors are generally unable to initiate enforcement actions against companies undergoing SCARP.

SCARP also allows for the repudiation of onerous leases or contracts. If the contract holder does not consent, the Court can grant approval if it deems repudiation necessary for the company’s survival.

How Grant Thornton can help you

Our SCARP specialists guide businesses through every step of the process, offering expertise in business management, contract negotiation, tax, accounting, and company law. We provide:

• Assessment of the company’s options and determination of whether SCARP is the best route.
• Acting as the Process Advisor for the company.
• Assistance in creditor and investor negotiations.
• Preparation of a tailored rescue plan to ensure business survival.
• Continued support and guidance throughout the restructuring process.

If your company is experiencing financial difficulties, contact us for a free consultation to explore whether SCARP is the right solution for you.

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