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Irish Examiner
9 hours ago
- Business
- Irish Examiner
Legal guides to rescue or liquidation
Rising interest rates and patchy post-pandemic demand are driving more Irish companies into difficult territory. When the balance sheet tips, four statutory routes exist: examinership, the Small Company Administrative Rescue Process (SCARP), liquidation and receivership. Each route triggers a different playbook for owners, lenders and employees, yet the boundaries overlap. Choosing well and choosing early decides whether a firm re-emerges or disappears. Shane Harron, partner at Dillon Eustace. Shane Harron, partner, Restructuring, Insolvency and Commercial Litigation, Dillon Eustace, sketches the purpose of examinership: 'Examinership is a rescue mechanism for companies in financial distress that meet certain criteria. It is generally considered to be a successful and flexible process designed to allow companies to continue to survive difficult periods.' Court protection freezes creditor action for up to one hundred days while an independent examiner prepares a scheme of arrangement. Directors stay in charge day-to-day and work with the examiner on investment, cost cuts or debt write-downs. SCARP offers similar breathing space to smaller companies but avoids court hearings. David O'Connor, partner at BDO. 'Smaller companies will often prefer the newer SCARP process, because examinership is quite expensive,' says David O'Connor, partner with BDO, whose team prepares independent expert reports for both processes. The same insolvency practitioner acts from start to finish, which trims fees and shortens timelines. In 2024, thirty businesses used SCARP to restructure, according to EY partner Alan Large. Barbara Galvin, partner with William Fry. At the opposite end sits liquidation. 'Liquidation marks the end of a company's life,' says Barbara Galvin, partner with William Fry. A liquidator takes control, sells assets and distributes the proceeds down a statutory waterfall. Solvent liquidations close in under a year, but insolvent cases, from IBRC to Treasury Holdings, can run for a decade when litigation clogs the pipeline. Receivership is narrower again. Here, the secured lender, not the board, fires the starting gun. 'Receivership differs from examinership and liquidation in that it is a process initiated by a company's creditors to realise a secured debt,' Harron explains. Once the charged assets are sold and the lender repaid, the receiver's mandate ends, sometimes in weeks. Speed and Scope Examinership follows a strict clock: seventy days plus a possible thirty-day extension. During that moratorium, creditors cannot sue, appoint a receiver or seek liquidation. SCARP moves faster because it is out of court; the process adviser must file a rescue plan within forty-two days. Liquidation moves only as quickly as asset sales, creditor claims, and disputes allow. Standard solvent cases average six to nine months, but complex insolvent estates stretch far longer. Receivership aligns with asset disposals and often completes within two years. Control and creditor influence Directors retain operational control in examinership and SCARP, yet they do not dictate outcomes. The examiner or process adviser groups creditors into classes, and a majority in at least one impaired class must vote for the scheme. 'Creditor negotiation forms a crucial part of the process,' Galvin says. Once the court, or in SCARP, the process adviser, confirms the plan, dissenting creditors are bound. In liquidation, directors lose all authority on appointment. They also face forensic scrutiny of decisions taken in the run-up to collapse. Receivership sits between the two: directors may still trade the unencumbered parts of a business if the receiver is appointed over specific assets rather than the entire undertaking. Director liability in the insolvency zone Statute now requires Irish directors to prioritise creditor interests once insolvency is likely. Ignoring warning signs carries a personal cost. 'As soon as a company's directors become aware of its insolvency, they should take all necessary steps to preserve the assets of the company for the benefit of its creditors,' Harron says. Liquidators must report to the Corporate Enforcement Authority and, unless excused, bring restriction proceedings against directors of insolvent firms. Sanctions range from a five-year restriction on acting as a director to full disqualification or personal liability for reckless trading. 'There is no statutory obligation to place an insolvent company into liquidation, but directors should only continue to trade where they believe on reasonable grounds that the company can survive,' Large says. Cost and suitability Examinership's court involvement adds expense. O'Connor sees boards hesitate when legal and advisory fees could top €300,000. 'You need to be of a certain size to justify going into the examinership,' he says, pointing out that smaller firms owe far less and cannot fund the process. SCARP cuts that hurdle because one practitioner fills the dual role of independent expert and process adviser, reducing duplication. Despite the options, uptake among SMEs remains modest. 'The number of SMEs availing of SCARP and examinership is not very high,' Galvin says. She blames a lack of awareness and the stigma that any insolvency procedure equals failure. Large adds that many owners wait too long and erode the working capital needed for a viable rescue. Outcomes in practice History shows rescue can work. The Goodman Group examinership in 1990 restructured wartime debt and protected thousands of jobs in the beef industry. More recently, Big Mike's restaurant in Dublin used SCARP to prune debt and safeguard employment. O'Connor's team provided the independent expert report for a nationwide food chain that entered examinership this month. 'There is a requirement for an independent expert to show that if this company goes into examinership, then there's a high probability it will succeed,' he explains. The court accepted the report and appointed an examiner, opening a path to protect what O'Connor calls 'potentially significant' jobs. Large has watched investors step in after balance-sheet clean-ups. 'The process allows companies to continue with a clean balance sheet and facilitate new investments that are essential for safeguarding their future,' he says. Choosing a path No single test determines which option fits. Harron emphasises early diagnostic work: cash-flow modelling, creditor mapping and covenant reviews. Owners must weigh the probability of survival against liquidity, fixed-charge security and stakeholder appetite for compromise. Galvin underscores timing: examinership and SCARP require enough cash to trade through the protection period. Liquidation or receivership may be unavoidable if working capital has already evaporated. Creditors influence direction, too. A lender can pre-empt examinership by appointing a receiver the moment a covenant is breached. Conversely, a successful examinership can bind secured lenders if the courts are satisfied the scheme treats them fairly. Practical steps before a crisis hits Directors can shrink legal risk long before insolvency lawyers arrive. Harron recommends daily cash monitoring and tight board minutes that show decisions and advice taken. Galvin adds that accurate books and records are the best defence against subsequent restriction applications. Large tells boards to scenario-model each pathway while funds are still available: comparing examinership, SCARP, and liquidation costs clarifies the trade-offs and underpins talks with creditors or investors. O'Connor's experience is blunt. 'Sometimes a solution is, guys, you're at the end of the road, you need to go into liquidation,' he says, warning directors against compounding debt once insolvency is obvious. The bottom line Ireland's corporate insolvency framework offers genuine rescue tools alongside orderly termination routes. Examinership and SCARP can salvage viable enterprises if boards act quickly, secure fresh capital and engage constructively with creditors. Liquidation and receivership close a chapter but still demand disciplined governance to avoid personal fallout. The legal pathway is never chosen in the courtroom; it is chosen months earlier in board meetings where directors either confront the numbers or flinch from them. In a tightening credit cycle, that distinction will decide which Irish businesses live to trade another day and which do not.
Irish Examiner
a day ago
- Business
- Irish Examiner
New SCARP process eases popular restaurant's post-Covid recovery
Big Mike's, a seafood-focused restaurant located in Blackrock, Co Dublin, underwent formal restructuring in 2025 through Ireland's Small Companies Administrative Rescue Process (SCARP). The process, introduced in 2021, is designed to support small and micro businesses facing short-term financial pressure by enabling them to reorganise outside of the courts. The restaurant is part of the Michael's group, founded by chef and restaurateur Gaz Smith. Delays related to the pandemic meant Big Mike's opened later than planned, and fit-out costs exceeded original estimates. Despite strong customer demand, the business encountered ongoing cash flow pressure as a result of rising input costs and residual liabilities from the build. Smith publicly acknowledged the situation, noting, 'I put everything into Big Mike's. Even my house deposit.' Rather than allow conditions to deteriorate further, management appointed a process adviser and initiated the SCARP process. The goal was to restructure debt, stabilise operations and protect employment. SCARP was selected over examinership due to its suitability for smaller businesses. It avoids court proceedings in most cases and is completed within a seven-week statutory period. According to Barbara Galvin, partner at William Fry, the process is underutilised but well-suited to companies like Big Mike's. 'SCARP is for businesses that are in trouble but still have something worth saving,' she says. 'It is not a wind-down mechanism. It is about early action and recovery.' Under the process, an insolvency practitioner reviews the company's position, prepares a plan, and presents it to creditors for approval. If sufficient support is secured, the plan proceeds without the need for court involvement. At Big Mike's, this was achieved with minimal disruption. Key to the outcome was the business's proactive engagement with stakeholders. Smith communicated openly with suppliers, staff and customers throughout, which helped maintain relationships and facilitate agreement on the restructuring plan. 'He was open with people from the beginning,' Galvin says. 'That transparency helped maintain relationships and made it easier to secure support for the plan.' Following creditor approval, the plan was implemented, and Big Mike's exited the process while remaining fully operational. No court hearing was required. The restaurant retained staff and continued to serve its customer base without interruption. 'This is a clear example of SCARP working as intended,' Galvin says. 'It was a viable business, but overextended. The process allowed it to restructure and recover.' The case highlights the importance of early action, clear communication and appropriate legal frameworks. Management acted before the situation became unmanageable, allowing for a structured solution. Suppliers and creditors supported the process in the belief that the business could succeed long-term. Despite SCARP's proven utility, uptake has been limited. Galvin attributes this to cultural hesitation and a lack of awareness. 'There is still a stigma around business rescue in Ireland,' she says. 'But SCARP is a practical tool. It allows businesses to survive financial shocks without entering costly and complex legal proceedings.' Big Mike's is one of a small but growing number of companies to use SCARP effectively. The case demonstrates that with timely decision-making and professional support, small firms can manage financial challenges without resorting to liquidation. 'If you wait too long, there may be nothing left to save,' Galvin says. 'SCARP only works if the fundamentals are still intact.' The experience at Big Mike's underscores the value of structured rescue frameworks and provides a real-world example of what successful business recovery can look like in practice. Key Lessons from Big Mike's: Act early: Management initiated the process before operations became unsustainable. Early engagement was essential. Communicate Clearly: Smith's transparent communication helped preserve confidence among staff, customers and creditors. Use the right framework: SCARP was more suitable than examinership, given the size of the company and the time-sensitive nature of the issue. Stakeholder support is critical: Continued supplier cooperation and creditor agreement enabled a smooth resolution.
