I am pleased to have the opportunity to present this Bill for the consideration of the House following its successful passage through the Dáil last week. The Bill provides for a genuine alternative to examinership for small and micro companies. It gives these companies the same access to corporate rescue as larger companies, thus providing them with a genuine opportunity to restructure their debts and continue trading.
In light of the economic impacts of the pandemic, the Government made a commitment to review the Companies Act to simplify and improve examinership laws for the small business sector. The Bill is a key commitment in the programme for Government and for me and is the culmination of a significant body of work by the Company Law Review Group, CLRG, and nearly a year's work by my officials and me, including significant consultation with business and industry representatives, with the support of Members of the Oireachtas. I thank the members of the Oireachtas committee in particular for facilitating the pre-legislative scrutiny phase. It demonstrated that, when we work together, we can achieve real progress.
The Bill delivers a new corporate rescue framework designed specifically for small and micro companies, which are key to our country’s economic success and recovery. The framework is an alternative to examinership that is more cost efficient and capable of conclusion within a shorter period. As our country emerges from the pandemic, the Bill will ensure that the necessary legal framework is in place to help viable small and microbusinesses stay in business. Delivering the Bill is reflective of the Government's continued commitment, as well as my own, to our small company sector and the jobs it provides. Where this sector and the companies that will be able to qualify for the process are concerned, it is worth noting that we are discussing 98% of companies, which support 780,000 workers. It is a substantial component of our economy. While I am hopeful that pressure on small businesses is beginning to ease with the gradual reopening of the economy, I recognise that many of these companies, while viable, will nevertheless continue to experience difficulties as we emerge from the 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.
The Bill's key feature is a novel process that 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, 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. Currently, examinership can run for up to 150 days. The new process seeks to arrive at a conclusion within 70 days, although this can be suspended where applications to court are required to allow the court the necessary time and flexibility to deal with the matters raised.
I will now outline the main provisions of the Bill. 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 SCARP. This 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 the requirements that 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 that the process adviser may have regard to when making his or her determination on the company’s viability.
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 adviser’s various duties, for example, to keep the original determination as to the viability of the company under constant review and to give notice of his or her appointment to the Companies Registration Office, the relevant court and Iris Oifigiúil and on the company’s website. It also obliges the process adviser to give notice to employees, creditors and other stakeholders so that they are afforded an opportunity to disclose any fact they consider material to the process. In this regard, all relevant parties are involved from early on in the process.
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 accept or reject formally certain uncompleted contracts to which it is party. Any party to a contract that suffers loss or damage because it is repudiated becomes an unsecured creditor for the amount of loss or damage. The Bill provides for repudiation to be dealt with in two ways, those being, by application to court or through an out-of-court process led by the process adviser, who will engage and negotiate with the relevant party.
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 the plan within a 21-day cooling off period. 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.
Under chapter 6, creditors have the right to object to the rescue plan. Where that happens, the courts will have a role in adjudicating the matter, as is currently the case with examinership.
Chapter 7 provides for the treatment of liabilities of third parties for debts of a company using the rescue process and chapter 8 provides for the conclusion of the rescue process.
Chapter 9 incorporates safeguards for creditors such as various enforcement provisions in respect of 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, chapter 11 provides for the remuneration costs and expenses of the process adviser and chapter 12 deals with matters of a general nature, such as the suspension of various time limits set out.
Part 3 of the Bill provides for miscellaneous amendments of the Companies Act 2014 necessitated by the introduction of the rescue process, such as additional cross-referencing throughout the Act. It 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 will 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, it 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, SCARP, to be held virtually during the Covid-19 period. I look forward to engagement with Senators.