Examinership vs SCARP Ireland
In this article, I will explore the Examinership procedure which is in place under the Companies Act 2014 (as amended) (the “Act”) for ailing companies with a reasonable prospect of survival and the more simplified Small Company Administrative Rescue Process (“SCARP”) procedure for small and micro companies.
Examinership
Examinership is a statutory restructuring mechanism under part 10 of the Act, which is available to companies that can establish their centre of main interests (COMI) in the Republic of Ireland. It enables a company to seek Court protection while formulating a restructuring proposal that reaches a compromise with creditors and supports the company’s continued viability.
Once an examiner is appointed, the company benefits from an automatic stay on creditor enforcement in respect of liabilities incurred prior to the application date.
Any proposed scheme must show that creditors will receive an outcome that is at least equivalent to, or better than, the return they would achieve in a liquidation scenario. The examinership process is subject to a strict statutory timeframe and must be completed within maximum 150 days (assuming extensions are granted) of the application.
During the protection period, the company must meet all ongoing trading obligations, including financing and leasing costs, and must be able to demonstrate adequate liquidity to do so.
A scheme of arrangement may be approved with the support of a single class of impaired creditors, provided that no creditor is unfairly prejudiced. Examinership is available to companies that are insolvent or at risk of insolvency.
SCARP
SCARP was established under the Companies (Rescue Process for Small and Micro Companies) Act 2021 (the “2021 Act”) and is a restructuring framework designed to provide small and micro companies with a practical and cost-effective alternative to examinership. The process enables financially distressed businesses to restructure their affairs, continue trading, and avoid liquidation, with limited Court involvement.
SCARP provides a period of relief from creditor pressure while a rescue plan is developed, allowing the distressed company to stabilise and work toward recovery. The process supports the restructuring of liabilities, including debt reduction, and permits the termination of onerous contracts or leases where consent is obtained or Court approval is granted.
The process exists to address the reality that small and micro enterprises represent the vast majority of Irish companies, many of which cannot bear the cost of examinership. SCARP offers a more accessible route to restructuring, helping viable businesses remain operational and regain financial stability.
SCARP is available to companies that meet at least two of the relevant size thresholds for small or micro enterprises relating to turnover, balance sheet value, and employee numbers. In addition, the company must be insolvent or likely to become insolvent and must not be in liquidation.
The procedure follows a strict statutory timetable and typically concludes within 49 days, followed by a 21-day cooling-off period. Directors must prepare a Statement of Affairs, after which a qualified Process Adviser assesses whether the company has a reasonable prospect of survival. A rescue plan is then prepared and put to members and creditors for approval. The plan is approved where at least 60% in number, representing a majority in value of one impaired class of creditors, vote in favour. Court confirmation is only required if objections are raised, in which case no fixed timeline applies, though the process commonly concludes within approximately ten weeks where uncontested.
For approval, the rescue plan must demonstrate that the company has a reasonable prospect of survival, that the proposals are fair and equitable, and that creditors will achieve a better outcome than they would in a liquidation. While SCARP does not automatically prevent creditor enforcement, the Court may grant a stay where necessary to support the company’s survival.
Under the 2021 Act, State creditors such as the Revenue Commissioners and the Department of Social Protection may exclude their debts from being compromised in certain circumstances, particularly where tax non-compliance or avoidance concerns arise. Accordingly, ensuring full tax compliance is a critical consideration for directors contemplating SCARP.
For more information please contact Niamh Gibney or Bernard King.
The content of this article is provided for information purposes only and does not constitute legal or other advice..
