Summary Rescue Procedure
What is the Summary Rescue Procedure?
The Summary Rescue Procedure is a proposed corporate rescue mechanism which has been recommended by the Company Law Review Group in an October 2020 report as a restructuring framework focused on SMEs.. The Government recognised that the Examinership process was too costly for many SMEs. The primary objective of the Summary Rescue Procedure to save the company and any jobs provided by it.
The Summary Rescue Procedure has undergone a public consultation process which concluded on 5 March 2021. it is expected that the Summary Rescue procedure will provide the following:
- A focus on small companies that satisfies two or more of the following three requirements:
- Annual turnover of up to €12m;
- A balance sheet total of up to €6m;
- Up to 50 employees.
- Commencement of the process by resolution of directors rather than a court application.
- Directors should commence the process following advice from a qualified insolvency practitioner as to the viability of the company, subject to a compromise with their creditors and/or introduction of new funds.
- Assistance from an insolvency practitioner to oversee the process is required to prepare a rescue plan to be voted on by creditors.
- A majority of value (50% + 1) of the total creditor pool is required to support the rescue plan, rather than the 75% vote required in a scheme of arrangement under Part 9 of the Companies Act.
- A cross cram down of debts is available as part of the restructure.
- Likely the rescue plan approved will not require an application to court, provided no creditors object.
- Safeguards against irresponsible and dishonest behaviour by directors that apply in liquidation will apply to this process.
The Summary Rescue Procedure will be an agreement between your company and its creditors to gradually pay off your debts over a short-term or a long-term period, typically from one to five years, or, alternatively, to accept a lump sum payment. Entering into a Summary Rescue Procedure can prevent creditors from winding up your business using a winding up petition. This allows you to continue trading while paying back your creditors over time and keeping your company in business.
Can our existing accountants do a Summary Rescue procedure for us?
It is expected that only authorised Insolvency Practitioners will be able to implement a Summary Rescue Procedure. If your existing accountants do not have an authorised Insolvency Practitioner, then we can work with them to ensure that your company, if eligible, can successfully do a Summary Rescue Procedure.
Will your company be eligible to propose a Summary Rescue Procedure?
Not all companies will be eligible to enter into a SRP. If your company has a business model that just isn’t viable and hasn’t ever produced a profit, it’s unlikely that your creditors will be willing to accept a SRP proposal.
In order to successfully propose and comply with a SRP, your company needs to show that the company will be financially viable. For some businesses, such as retail and hospitality, it will be challenging to assess future viability post-Covid. For example, in respect of pubs, the consensus view is that when pubs do finally re-open that sales in Year 1 will be 55% -60% of 2019 sales, Year 2 will be 75%, year 3 will be 85%. For some pubs, sales will not get back to full 2019 levels due to a change in consumer habits. In respect of fashion retail, Covid has propelled us 10 years into the future, and over 50% of such sales are now carried out online.
What will be the advantages of entering into a Summary Rescue Procedure?
For most insolvent companies, the biggest benefits of a SRP will be the core elements of the agreement itself: it will let your company pay its debts over time and write off a percentage of its total debts to creditors, improving cash flow in the short term.
Unlike liquidation, which could leave creditors with little or no money once your company is wound up, a SRP guarantees creditors a certain amount of their debt over the repayment period.
What will be the disadvantages of entering into a Summary Rescue Procedure?
- If your company breaks the terms of its SRP by missing a payment, it could still end up being wound up by its creditors.
- Entering into a SRP could have negative consequences for your company’s credit rating.
- There’s no guarantee that your SRP proposal will be accepted. At least 50% + 1 of your company’s creditors need to agree for the Summary Rescue Procedure to be accepted.
- A SRP may not a short-term solution. Your company could spend several years repaying its creditors before the SRP is completed.
- Any personal guarantees that the directors provided to creditors will remain in place.
- Certain directors may remain personally liable for any PAYE that was deducted from their salaries and which is written off in the SRP.
Are there any steps we should be taking now before the legislation is operative?
If you believe you will end up needing a SRP then you should consider if you need to take preparatory steps now. The steps to be taken will depend on the specific circumstances facing your company. Such steps might include some of the following:
- Implementing a “pay freeze” in respect of certain creditors
- Implementing a redundancy programme
- Surrendering leases to landlords
- Obtain valuations of buildings, plant & machinery.
- Bring management accounts up to date,
- Submit all tax returns. In particular, ensure that you have adjusted your VAT returns if you have not paid a supplier within the required 6 months.
- Commence preparing a pack of information for the Insolvency Practitioners such as: a brief history of the company, an organisation chart, summaries of property leases and finance leases, summary of employees salaries and employment history, excel spreadsheet of all creditors to include postal and email addressees, cash flow forecasts and trading forecasts.
- Appoint an experienced Insolvency Practitioner to guide you through the process.
We can provide expert advice on all necessary steps, including how to communicate with creditors.
What are the other options to a Summary Rescue Procedure?
For information on Turnaround, Schemes of Arrangement, Receivership, Examinership or Creditors Voluntary Liquidation please click on the following links:
Creditors Voluntary Liquidation
How can Friel Stafford assist?
We have established three SRP teams, headed up by three qualified and registered insolvency practitioners. Jim Stafford, Tom Murray and Andrew Hendrick, to advise companies on SRP. Whilst the legislation is not yet published, we are fairly confident as to what it will generally contain. (It remains to be seen if key issues such as repudiation of onerous leases will be allowed, whether Revenue debt can be crammed down etc.) We are currently signing up clients and providing preparatory advice as to what steps companies should be taking now.
For further information please email either jim.stafford@frielstafford.ie tom.murray@frielstafford.ie or andrew.hendrick@frielstafford.ie
