I move: "That the Bill be now read a Second Time."
I am pleased to have the opportunity to introduce this Bill. Fundamentally, it represents an effective lifeline to viable small businesses and affords them an opportunity to restructure their debts and continue trading. In light of the Covid-19 crisis, the Government made a commitment to review the Companies Act to simplify and improve examinership laws for our small business sector. A key commitment in the programme for Government, this Bill is a culmination of a significant body of work by the Company Law Review Group, CLRG, and nearly a year's work by me and my officials, which included important consultation with business and industry representatives and, of course, the support of the Members of the Oireachtas, demonstrating that when we work together collectively, we can make a difference.
This Bill delivers a new corporate rescue framework designed specifically for small and micro companies, which form the backbone of our economy and communities. The Bill provides an alternative to examinership which is more cost-efficient and which can be concluded within a shorter period. As we emerge from the pandemic, the Bill will ensure that the necessary legal framework is in place to help viable small and micro businesses to stay in business. Delivering this Bill is reflective of the Government's commitment, and mine, to our small companies sector and the many jobs it supports.
Before I go through the specific provisions, I want to outline the process undertaken to develop the Bill and give appropriate context and recognition to the stakeholders involved. Throughout the pandemic, the Government has prioritised measures to ensure the survival of the countless small companies across the country. While a response to the crisis so far has proven successful in mitigating the immediate impact of the pandemic, I am acutely aware of the enormous pressure business owners currently face in terms of their liquidity and the sustainability of their businesses. This is particularly true of many small and micro companies, which employ 788,000 employees. Some 78% of those companies operate in sectors that have been particularly challenged by the pandemic, such as retail, hospitality and the service industry.
The Government quickly recognised last year that additional measures would be necessary to support the businesses in the face of the then rapidly evolving crisis. With that in mind, we set our sights on a proactive and comprehensive review of the regulatory framework for the rescue of viable small and micro companies and an assessment of all available policy options to enable these companies to continue in business and return to full operations and profitability. That work began in July 2020 when we requested the CLRG to examine the issue of rescue for small and micro companies and make recommendations as to how a process for these companies might be put in place. As many Deputies will know, the membership of the CLRG, a statutory body, comprises representatives from a wide range of stakeholders, including representatives from the trade unions, business associations and banking and auditing bodies, in addition to academics, legal practitioners and insolvency experts. The breadth of representation makes it uniquely well positioned to advise on matters of company law.
The CLRG delivered its report on the rescue of small companies in October 2020. From that point on, officials from my Department worked to develop the its advice from both operational and policy perspectives. This work involved ongoing consultation with the Office of the Attorney General and key stakeholders, including the Revenue Commissioners, the Department of Social Protection and the Department of Justice. In February, I launched a month-long public consultation on the proposed measures to further inform the development of the general scheme of the Bill. My Department received 17 substantive submissions from representatives of employers and employees across all sectors and industry professionals in the field of company law and insolvency. An overview of these, together with my Department's analysis and subsequent responses, is published and publicly available in a report on the Department's website.
While we set ourselves a very ambitious task - some thought it too ambitious - to develop a new rescue process in the midst of the public health crisis, we did so in the most transparent and accessible way possible. Consequently, I am happy to say that the Bill has met broad support from stakeholders, including industry and professionals in the field.
While I am hopeful that the pressure on small businesses has begun to ease with the gradual reopening of the economy, I fully recognise that many companies, while viable, will nevertheless continue to experience difficulties as we emerge from this crisis. In that context, the Bill is essential to provide these companies, where necessary, with a clearly defined and accessible rescue process that will give them the breathing room they need to get back on their feet. It is our responsibility to ensure this vital legislation is implemented in time to make a difference to those viable small and micro companies that are trading through a difficult period.
I thank the members of the Joint Committee on Enterprise, Trade and Employment, under the chairmanship of Deputy Quinlivan, and the Business Committee for their consideration of the Bill and their agreement to waive pre-legislative scrutiny, which will facilitate the Government in bringing the Bill before the House in advance of the summer recess.
Speaking specifically on what is proposed today, many Deputies will be familiar with examinership as a well-established, internationally recognised framework for the rescue of companies in trading or financial difficulties. We know from years of experience that examinership works and saves both companies and employment. However, examinership as a process is overseen by the court from beginning to end. For this reason, it can be an expensive undertaking and, thus, potentially out of reach for the average small company, especially one in financial difficulties.
The defining feature of this Bill is a novel process which reduces court involvement as far as possible with a view to speeding up the rescue process and reducing the associated costs. The small company administrative rescue process, or SCARP, is initiated by the directors of the company concerned and can proceed without significant court involvement if the company’s creditors are positively disposed towards the rescue plan. The process is capable of conclusion within a shorter timeframe than examinership. Where examinership can currently run for up to 150 days, this process seeks to arrive at a conclusion within 70 days, although it can be suspended where applications to court are required to allow the courts the necessary time and flexibility to deal with the matters raised.
While court involvement is limited, I am conscious that the issue of corporate rescue extends far beyond the distressed company and, as such, the process incorporates robust and necessary safeguards and reflects what I believe to be a fair balance of the sometimes competing interests of stakeholders.
The introduction of this legislation or any new legislation is not without risk. For this reason, officials from my Department have engaged extensively with the Attorney General’s office to ensure the process is constitutionally robust and meets the required standards of procedural fairness. The Bill fundamentally mirrors the key elements of the examinership model in an administrative context. We have, therefore, designed a process which is built on a tried and tested framework, with the benefit of years of experience and jurisprudence. The proposals are founded on an existing bedrock of well-understood and well-respected law and deliver an accessible, fair and balanced process for the broad range of stakeholders impacted by corporate rescue.
This Bill also provides for amendments arising from the CLRG's first phase of work in the area of employees' rights as creditors under the Companies Act in line with the recently published Plan of Action – Collective Redundancies following Insolvency. The plan has been broadly welcomed by the social partners, in particular the Irish Congress of Trade Unions. I express my gratitude to all involved for their constructive engagement in this space and I look forward to our continued work together.
I will now outline the main provisions of the Bill. The Bill consists of three Parts and 12 sections. An explanatory memorandum has been published and it provides a summary of the provisions.
Part 1 contains the Short Title, commencement provisions and interpretation. Part 2 inserts a new Part 10A into the Companies Act 2014 providing for the small company administrative rescue process. The Part, which is divided into 12 chapters, details the legal framework for qualifying for, initiating and the subsequent operation and conclusion of the rescue process.
Chapter 1 defines relevant terms specific to the newly inserted Part 10A for the purposes of the operation of the rescue process for small and micro companies.
Chapter 2 sets out requirements an eligible company must meet to avail of a rescue plan. It provides that the process adviser, who is a qualified insolvency practitioner, must determine whether the company concerned has a reasonable prospect of survival. The chapter outlines various criteria the process adviser may have regard to when making his or her determination on the company’s viability. Where there is a reasonable prospect of survival, the process adviser must prepare a detailed report in accordance with the criteria laid down in the chapter and this report and its recommendations must be presented to the company directors.
Chapter 3 provides for the appointment of the process adviser by a resolution of the company directors. The rescue process is commenced by a resolution rather than by an application to court. The chapter goes on to set out the process advisers' various duties, for example, to keep the original determination as to the viability of the company under constant review and to give notice of their appointment to the Companies Registration Office, the relevant court, Iris Oifigiúil and on the company’s website. It also obliges the process adviser to give notice to employees, creditors and other stakeholders so they are afforded an opportunity to disclose any facts they consider material to the process. In this regard, all relevant parties are involved from early on in the process.
This chapter also deals with the treatment of excludable debt, whereby State creditors, such as the Revenue Commissioners and the Department of Social Protection, may determine to opt out of the process on specific statutory grounds, such as if the company has a poor history of tax compliance. This should provide comfort to businesses that the State will not remove itself from the process for arbitrary reasons. I highlight that there has been significant consultation with the Revenue Commissioners in developing this Bill. The Revenue Commissioners are excludable creditors under the Personal Insolvency Act 2012 and have opted in to over 90% of cases where they are in a position to quantify the debts owed. The Revenue Commissioners have committed to being similarly constructive participants under the process provided for by the Bill.
Chapter 4 provides for the rescue plan process. It allows for repudiation of contracts where the process adviser considers it necessary for the survival of the company as a going concern. Repudiation allows the company, subject to court approval where appropriate, to either formally accept or reject certain uncompleted contracts to which it is party. Any party to a contract which suffers loss or damage because it is repudiated becomes an unsecured creditor for the amount of the loss or damage. The Bill provides for repudiation to be dealt with in two ways. One is by application to court and the other is by way of an out of court process led by the process adviser who will engage and negotiate with the relevant party. Repudiation has proven to be a key tool for dealing with problematic leases in examinership and its inclusion in the new process is welcome.
Under chapter 5, the process adviser is required to call a meeting of all creditors and members to present the rescue plan. The rescue plan is binding without court approval provided at least one impaired class of creditors votes in favour of the plan and no creditor raises an objection to it within a 21-day cooling-off period following the vote. A rescue plan shall be deemed to have been accepted by a class of creditors when 60% in number representing the majority in value of the claims in that class vote in favour of the rescue plan. As with examinership, the proposed process does provide for cross-class cram-down. This means that where one class of impaired creditors votes in favour of the rescue plan, it can be imposed on all classes of creditors.
Under chapter 6, creditors have the right to object to the rescue plan and where that happens, the courts will then have a role in adjudicating the matter, as is currently the case in examinership.
Chapter 7 provides for the treatment of liabilities of third parties for debts of a company using the rescue process.
Chapter 8 provides for the conclusion of the rescue process. This chapter and chapter 9 also incorporate safeguards for creditors such as various enforcement provisions in relation to failure by company directors and process advisers to comply with filing, notice and information obligations. There are also safeguards against and penalties for irresponsible and dishonest director behaviour.
Chapter 10 sets out the various powers of the process adviser such as the power to convene and preside at board meetings and general meetings, to dispose of charged property and to examine under oath any relevant person.
Chapter 11 provides for the remuneration, costs and expenses of the process adviser. Chapter 12 deals with matters of a general nature such as the suspension of the various time limits set out in Chapter 10A while any matter is being considered by the courts and the retention of records for six years.
Part 3 provides for miscellaneous amendments to the Companies Act 2014 necessitated by the introduction of the rescue process such as additional cross-referencing throughout the Act. Part 3 also provides for amendments arising from the CLRG's first phase of work in the area of employees' rights as creditors under the Companies Act in line with the recently published plan of action on collective redundancies following insolvency. These are discrete amendments which improve the flow of information to employees as creditors during a liquidation and provide for a dedicated position for employees on the committee of inspection, a committee which may be elected to oversee the liquidation. Finally, Part 3 provides for the application of the temporary amendments made by the Companies (Miscellaneous Provisions) (Covid-19) Act 2020 to provide for meetings under the small company administrative rescue process to be held virtually during the Covid-19 period.
We are all aware of the enormous pressure business owners currently face in respect of not only their immediate liquidity but also the sustainability of their businesses into the future. This is particularly true of small and micro companies. The contribution these companies make to our economy cannot be overstated. These companies will be key to our country's economic recovery. It is for this reason that my priority since taking office last year has been to develop a framework that can provide a genuine alternative for these companies, and through engagement with key stakeholders and Opposition Members we are now in a position to bring forward an effective alternative for the rescue of small and micro businesses. I take this opportunity to commend the extraordinary effort of our public servants, who responded swiftly to the evolving challenges posed by the global pandemic. This legislation is a testament to that, and I commend the officials in my Department working in this area on their dedication and hard work to bring forward this significant legislation to help struggling but viable small businesses that need an opportunity to restructure. As we reopen the economy, I want these businesses to know that this Government is committed to supporting their long-term viability, and I want their employees to know that we are committed to supporting their jobs. To that end, we must have an appropriate regulatory response not simply planned but actually in place and available to small businesses, one which supports fundamentally viable companies to continue to trade, to get themselves back on their feet and to preserve employment.
I remind Deputies that it is our responsibility to ensure that this essential rescue process is implemented in time to make a difference to these companies. It is my hope we can have this legislation enacted before the summer recess. I hope Deputies will appreciate the difficulties inherent in trying to strike what is at times a delicate balance between the respective rights of companies and creditors. More importantly, I believe the balance struck in the Bill is fair for all concerned. I look forward to hearing the views of Deputies and to working with them to progress this important legislation as quickly as possible through both Houses. I am proud to commend the Bill to the House.