The introduction of the new Summary Rescue Process will provide a less expensive alternative to examinership and help viable companies
to survive, says insolvency specialist PJ Lynch.

Article published in IB Partner Profile on July 6th, 2021

“Despite the raising of restrictions, COVID-19 continues to disrupt economic activity which may eventually lead to an increased number of companies in financial distress having to cease trading and be correctly wound up,” says PJ Lynch, founder of PJ Lynch and Company, specialists in accounting and liquidation.

“However, there will also be companies which are reasonably viable and as such are capable of being rescued and allowed to continue to trade successfully.”

“Small companies have challenges in availing of the state’s most common and most expensive rescue package, examinership, which posed a significant barrier to access due to its affordability.”

Examinership

Traditionally, companies in this situation would undergo the process of examinership, whereby the company may restructure and protect their assets, with the approval of the Courts. “Examinership was first introduced in Ireland in the early 1990’s when the Government rushed through legislation known as the Companies (Amendment) Act 1990,” explains Lynch.

“The Act gave companies who were about slip into insolvency an opportunity to restructure and survive. Expensive though it is, examinership provides a lifeline for companies, who otherwise would have gone into liquidation, to trade out of its difficulties and continue in business.”

The updated Companies Act 2014 allowed new legislation to be introduced which allowed examinerships applications to be taken before the Circuit Court to provide cost reduction for smaller businesses, however, Lynch notes that companies were slow to avail of the process.

A New Alternative

With the inordinate number of businesses affected by the COVID-19 pandemic, the Government has acted to bring in a new restructuring process suitable for small companies.

“The Department of Enterprise, Trade and Employment, in their efforts to support small businesses, are introducing a rescue package known as Summary Rescue Process (SRP),” Lynch elaborates.

“In introducing SRP, the Department have acknowledged that small companies have challenges in availing of the State’s most common and most expensive rescue package, examinership, which poses a significant barrier to access due to its affordability.”

According to the Department of Enterprise, Trade and Employment, small companies employ in the region of 788,000 people across the country and with the significant contribution to the economy this makes, it is in the country’s economic interest that those companies which are fundamentally viable have an opportunity to restructure and access an appropriate rescue process.

The SRP will be a standalone process, distinct from examinership, but which mirrors some aspects of it. It is envisaged that the SRP will reduce the associated costs and regulatory burden for small companies, while also maintaining appropriate safeguards for creditors, resulting in a more accessible process and greater uptake.

The new framework will be tailored to the needs of micro businesses employing fewer than 10 and small companies with a work force of not more than 50 and a turnover of €12m a year.

•  PJ Lynch, a licensed Insolvency Practitioner, is principal at PJ Lynch & Company at Westland Square in Dublin 2.
Tel (01) 707 9662 or email pj@pjlynchco.ie