Back from the brink: an exploration of the formal Restructuring mechanisms designed to revive firms

Introduction

I personally contend that an awareness of the formal Restructuring procedures on offer in Ireland and some basic knowledge of their application is an absolute necessity for business owners of any size. They have the potential to keep countless viable Irish firms, the length and breadth of the country, from collapse.

This article will perform an exposition of the two primary formal Restructuring methods in Ireland with the goal of salvaging a business. The aim of this article is to provide lay business owners in Ireland with a high level, digestible overview of the two formal rescue programmes available.

The two primary formal rescue methods in place for companies in Ireland are Examinership and SCARP- (Small Companies Administrative Rescue Process). For the ease of comprehension, I will explore each process in two separate sections of the article.

Examinership

Background: Examinership is designed for large Irish corporations, which are ailing, but have the potential to survive. Examinership was established by section 509 of the Companies Act 2014. The firm must have a reasonable chance of survival as affirmed by an independent accountant’s report.

Process: This process is essentially when the court grants temporary protection for a firm in distress, and appoints an “Examiner”, to appraise the financial affairs of the company and to create a redemption plan for the firm. The process may involve a whole host of steps such as renegotiation or even repudiation of debt, securing of additional financing, alteration of ownership structure or even a pivot of business strategy. The final submission or Scheme of Arrangement before the court is due after 100 days. But the process can take as long as 150 days.

Application: Examinership is open to all companies. However, it can be quite costly meaning its scope is normally limited to large firms. The long length of court proceedings and drawn-out nature, means that, in reality, the number of firms suitable for this rescue process is limited even further to certain types of large firms.

Assessment: The numbers speak for themselves. A total of 593 jobs were saved from 9 successful Examinerships in 2020 according to the Baker Tilly index. Some of the titans of Irish and international business have in the past entered, and successfully exited Examinership. This includes Norwegian Air Shuttle, and Ladbrokes to name but a few.

SCARP

Background: This procedure is the new kid on the block. It was enshrined by The Companies (Rescue Process for Small and Micro Companies) Act 2021. To date, there has been very few SCARP’s carried out in Ireland with 10 SCARP’s carried out in 2022 to date, so this is very much the diamond in the rough that many entrepreneurs may not be familiar with.

Application: This procedure targets the long-overlooked swathes of small and micro enterprises which are struggling but have the potential to be saved during periods of economic turbulence. These enterprises account for roughly 98% of Irish firms. This mechanism is not available to large companies. SCARP is applicable to firms which meet two of the following three criteria:

1) Turnover does not exceed €12m

2) Balance sheet does not exceed €6m

3) Less than 50 employees

Firms engaging in SCARP must not have used Examinership or SCARP previously in the last 5 years.

Process: The SCARP process involves firstly preparing a statement of affairs and engaging an Insolvency Practitioner (Process Advisor). SCARP necessitates the creation of a Rescue Plan and subsequent approval by creditors. The routes to rescue can be very broad, including restructure of the balance sheet and renegotiation of debt, much like Examinership. The Rescue Plan must be submitted in 49 days and is ratified by the courts after 70 days. This process is designed with a consideration for preferential creditors.

Assessment: The process was designed with the vision that firms could dispose of their historical debt and begin to thrive again in a post Covid-19 world. The data is not yet there to analyse, but many leading Restructuring commentators herald SCARP as a potential game changer for Irish firms in distress.

Conclusion:

In close, I theorised this article with the motivation of education for non-financial business operators. The overwhelming majority of market observers and Economists are unanimous in their predictions that we are hurtling towards a murky and potentially harsh economic future. With that in mind, every single type of business, be they a FTSE100 Tech behemoth, or a small-town B&B, can benefit from an education into the options available to them in times of economic distress.

This country is home to a multitude of expertly trained and extremely passionate advisors with the skill-set and experience to successfully guide suitable companies through these rescue procedures. If perchance anyone reading this article finds their business in choppy waters and feels overwhelmed, I would strongly encourage you to reach out to one of these advisors and take action as soon as possible.

Remember, the journey of a thousand miles begins with a single step.