8th December 2021
The Companies (Rescue Process for Small and Micro Companies) Act 2021 provides for a new dedicated rescue process for small companies
The process mirrors examinership in a simplified, administrative context
Robert Troy TD, Minister for Trade Promotion, Digital and Company Regulation, has announced the commencement of the Companies (Rescue Process for Small and Micro Companies) Act 2021.
The commencement of the Act makes the small company administrative rescue process, available to all eligible small and micro businesses in the country.
Announcing the commencement, Minister Troy stated that:
“Ireland’s small and micro companies are the backbone of our local communities and our national economy, but the past two years has seen a disproportionate and negative impact on these businesses as a result of the pandemic. Throughout this period and to ensure their long-term survival Government prioritised policies to support this vital sector.
“A central part of that effort has involved a complete review of the restructuring and rescue mechanisms available to small companies in difficulty. This entailed a comprehensive review of the existing regulatory framework and an assessment of all available policy options. Arising from this review we set ourselves the ambitious task of creating an entirely new procedure to address the specific needs of small companies.
“This work has been a personal priority since my appointment as Minister, therefore I am very pleased to announce the commencement of the new Small Company Administrative Rescue Process.”
The legislation provides a new simplified restructuring process for viable small companies which is more cost and time-effective, initiated by companies themselves, and commenced without the need for Court approval.
Minister Troy continued:
“This rescue process is modelled on our existing examinership process and founded on a bedrock of well understood procedures and precedents. It is a simplified and effective process that I believe will give small and micro companies a genuine opportunity to restructure and continue to trade. If any small business is experiencing temporary difficulties but is fundamentally viable, I would encourage them to consider this process as a suitable option.”
Further information on the small company administrative rescue process is available at enterprise.gov.ie/RescueProcess
Notes for Editors
Background
As part of the Government’s medium-term stabilisation response to the economic challenges of the pandemic, and in keeping with commitments contained in the Programme for Government, the Companies (Rescue Process for Small and Micro Companies) Act 2021 provides for a stand-alone rescue framework for small and micro companies. It is recognised that Ireland’s existing framework, examinership, while internationally recognised and successful in its own right, may be beyond the reach of small companies due to the associated costs. In this regard, the Tánaiste wrote to the Company Law Review Group (CLRG[1]) requesting it to examine the issue of rescue for small companies and make recommendations as to how such a process might be designed. The provisions of the Act emanate from the CLRG’s subsequent recommendations.
The rescue process seeks to mirror key elements of examinership in an administrative context thereby reducing court oversight, resulting in efficiencies and lower comparable costs. It has limited court involvement where creditors are engaged in the process and positively disposed to a rescue plan.
[1] The CLRG is a statutory advisory body charged with advising the Tánaiste on all matters pertaining to company law in the public interest. Membership of the CLRG is representative of the broad range of company law stakeholders making it uniquely well positioned to provide a nuanced view on the issue of rescue for small companies.
Features of the Act
The Act delivers a new simplified restructuring process for viable small companies which is:
- more cost effective and timely
- initiated by companies themselves
- commenced without the need for Court approval
The main provisions of the Act can be broadly summarised as follows:
- Available to small and micro companies (as defined by the Companies Act 2014).
- Commenced by resolution of directors rather than by application to Court.
- An insolvency practitioner (who must be qualified to act as liquidator under the Companies Act) is appointed by the company to begin engagement with creditors and prepare a rescue plan. The rescue plan must satisfy the ‘best interest of creditors’ test and provide each creditor with a better outcome than a liquidation. In addition to this, no creditor may be unfairly prejudiced by the plan. This is in keeping with established principles under examinership.
- Creditors are invited to vote on the rescue plan by day 42 of the insolvency practitioner’s appointment. The proceedings in relation to the required meetings of creditors are in keeping with existing provisions of the Companies Act.
- The rescue plan is approved without the requirement for Court approval provided that 60% in number representing the majority in value of an impaired class of creditors vote in favour of the proposal and no creditor raises an objection to the plan within the 21-day cooling off period which follows the vote. The approval mechanism is drawn from examinership and provides for a cross class cram down. This means that where one class of impaired creditor votes in favour of the plan, this decision can then be imposed on all classes of creditors.
- Where an objection to the rescue plan is raised, there is an automatic obligation on the company to seek the Court’s approval. This acts as a safeguard for creditors.
- Concluded within a shorter period than examinership (examinerships can currently run for up to 150 days, this process seeks to arrive at a conclusion within 70 days, subject to extension where necessary for Court applications).
- Has safeguards against irresponsible and dishonest director behaviour. The Office of the Director of Corporate Enforcement (ODCE) also has a suite of powers to examine books and investigate, as appropriate, in line with that which is provided for in relation to liquidations, receiverships and examinerships.
- Provides that State creditors, the Department of Social Protection and the Revenue Commissioners, may be excludable from the process. This means they may determine to “opt out” of the process on the basis of statutory grounds, for example if the company has a poor history of tax compliance.
The process also incorporates sufficient safeguards for the protection of creditors:
- As there is no automatic stay on proceedings, creditors are not impaired by virtue of entry to the process.
- Creditors are afforded an opportunity to provide input to the process advisor (insolvency practitioner) upon his or her appointment to disclose any facts they consider material to the process.
- There are various enforcement provisions in relation to failure to comply with filing, notice and information obligations.
- The process advisor will be subject to the same reporting requirements as a liquidator.
- The current requirements in respect of restriction applications will also apply.
The Act further amends the Companies Act 2014 to progress recommendations made by the CLRG in relation to the provision of information to employees as creditors in a liquidation and which are in line with the Plan of Action on Collective Redundancies following Insolvency. It amends the 2014 Act to clarify that liquidators have the power to bring and defend proceedings in the Workplace Relations Commission (WRC) and Labour Court and provides a dedicated position for an employee representative on the committee of inspection set up to oversee a liquidation.
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