SCARP_ BDO Our Financial Sector Experts

SCARP

The Small Companies Administrative Rescue Process: a now proven restructuring process for struggling, yet viable, Small and Micro companies

Restructuring works

I was very recently appointed Process Adviser under the newly introduced SCARP legislation to a Mechanical & Electrical Engineering company with turnover of c €8mln and staff compliment of 70. The company in question had experienced profitability and recoverability issues on a number of non core projects it entered into at the commencement of Covid 19. This resulted in the company’s finances being significantly depleted and the company was facing liquidation. Thankfully however the adverse outcomes on these non core projects was not recurring and we could see a viable future for the company if we could devise a credible rescue plan, attract investment and gain the support of the creditors of the company for a restructure.

I am happy to report we, working alongside the company, were able to attract the necessary investment and secured the overwhelming support of the creditors (greater than 90%) for the Rescue Plan we laid before them. The company successfully exited the SCARP process last month with a rightsized, restructured balance sheet along with new additions to the board and the creditors secured an initial dividend which was greater than that recoverable in a liquidation scenario along with the potential for further dividends down the line.

The outcome of this case, which we believe to be the largest SCARP in the country to date, proves that the SCARP legislation is fit for purpose and can be a comprehensive and suitable restructuring option for viable businesses who have experienced non-recurring adverse financial challenges.

What is SCARP

In December 2021, a new term SCARP or the Small Companies Administrative Rescue Process to give its full name, was signed into legislation by Minister Robert Troy. This new legislation introduces a dedicated rescue process for small and micro companies which are experiencing temporary financial difficulties.

SCARP was created to give smaller businesses an opportunity to comprehensively restructure their debts and provide a better outcome to creditors versus a liquidation scenario.

SCARP is fundamentally based upon the principals applied to examinership, but is administratively based and is ran outside of court (unless objections from creditors are received) and as such it significantly reduces the cost of a binding restructuring. The SCARP process can be concluded between 50 – 70 days depending on the scheme and the rescue option enables suitable companies (subject to creditor approval) to restructure their balance sheet, right-size their liabilities, get back on a stable footing and hopefully thereafter thrive into the future.

A rescue plan under SCARP is deemed to be accepted when 60% in number presenting a majority in value of the claims represented at a creditors meeting vote in favour of the plan.

SCARP is available for companies (both Micro and Small) which satisfy two or more of the three criteria set out in the below;

A SCARP process can be initiated once the company directors pass a resolution appointing an insolvency practitioner, or as referred to in the legislation, the “Process Adviser” (“PA”). Prior to taking any engagement, the PA needs to ensure that the company has a reasonable prospect of survival. The PA begins engagement with all creditors and prepares a rescue plan which is ultimately laid before creditors at a meeting for their approval. Relevant State creditors have the option to opt ‘in or out’ of the scheme.

SCARP will not be suitable for all companies and where viability is not clear to see then unfortunately liquidation will need to follow for such businesses. However where viability is present, subject to new investment and creditor support, then we believe SCARP is a real restructuring option. We would however impress that time is of the essence and if a business is experiencing difficulties, we recommend early engagement with an experienced insolvency practitioner!

For any businesses feeling the pinch in current times, SCARP or other rescue frameworks should be considered.

A Micro Company A Small Company

Annual turnover less than €700,000

Balance sheet total less than €350,000 Annual turnover less than €12million

Balance sheet total less than €6million

Less than 10 employees Less than 50 employees

Brian McEnery

Corporate Finance & Insolvency Partner Feel free to contact the BDO

Corporate Finance & Recovery team

for a no obligation consultation:

Brian McEnery

bmcenery@bdo.ie

Stephen O'Flaherty soflaherty@bdo.ie

Robert Dowling rdowling@bdo.ie