Small Firms Association insists that any new business rescue plan must be revisited
A new low-cost examinership scheme will leave businesses with significant problems, if an option to exit from leases and other onerous contracts is not included, the Small Firms Association (SFA) has told the Government.
A public consultation seeking views on the proposed ‘Summary Rescue Process’ — a restructuring framework for small and micro companies — is currently underway. The new process is based on a report from the Company Law Review Group (CLRG).
According to the SFA, the CLRG report indicates that its committee considered the question of whether the process should include a mechanism by which onerous contracts might be repudiated.
“It appears from the report that there was a divergence of views on the issue,” states the SFA submission, which was written by Declan de Lacy, an insolvency expert from PKF O’Connor, Leddy & Holmes.
Some members of the CLRG committee working on the scheme considered the matter to be “too complex an issue to be dealt with in a simplified process aimed at smaller companies”. Others considered that “repudiation should be available where it is necessary to ensure the survival of the company”.
The report did not reach any conclusion on the issue nor make any recommendation on this point.
“In many cases the greatest threat to solvency faced by SMEs is the burden of onerous contracts, most particularly leases with passing rent exceeding market rent,” read that SFA submission:
“This will be especially the case in the aftermath of Covid-19 restrictions, when it may reasonably be expected that the market rents in some sectors and for some categories of property will fall below those agreed prior to the emergence of Covid-19.”
It said this would put existing businesses at a significant disadvantage to new entrants and companies that have used the examinership process to reduce their passing rent.
“If the proposed scheme omits a mechanism to address the future liabilities associated with onerous contracts, in a similar manner to the examinership process, then many businesses that otherwise could be made viable will fail.”
The consultation, which falls under the auspices of Minister for Trade Promotion, Digital and Company Regulation Robert Troy, asks if any class of debts should be excluded from the process.
The SFA said that this would only impact on other creditors.
“It should be borne in mind that the burden of excluding any class of creditor from a compromise falls not on the debtor company, but on the remaining creditors as a body in the form of reduced funds being available to discharge their claim.”
It pointed out the Revenue has a range of collection and enforcement powers should issues arise.