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Creditors Holding Guarantees Need to Plan to Respond Promptly to SCARP

While the volumes are still low, there is an increase in companies availing of the Small Companies Administrative Rescue Procedure (SCARP).

Shortly after being appointed, the process advisor should write to you as a creditor, informing you of his or her appointment and seeking certain information. The process advisor should also seek an email address with which to communicate with you during the process. If you provide an email address, the process advisor will communicate with you using that email address.

If the creditor is a company and does not provide an email address, notices will likely be sent to the registered office by post.

In the following weeks, the process advisor will then attempt to formulate a rescue plan and call meetings of creditors to vote on the plan.

The Notice of the Creditors’ Meeting

The process advisor will send you, as a creditor, an invitation to attend a meeting of creditors to vote on approving the plan. On receipt of that notice, you have 48 hours in which to offer to transfer your voting rights to the guarantor of the debts of the company.

This 48-hour period is not qualified by weekends or public holidays. Accordingly, if you receive the notice at 16:59 on a Friday, you need to issue the offer to the guarantor before 16:59 on Sunday.

If you do not do this and the plan is approved, you will not be able to exercise your rights against the guarantor. This could mean that 95% or more of the liability will not be recoverable. Even if the plan is not ultimately approved, a creditor needs court approval to enforce the guarantee, so it is potentially a very expensive mistake.

Transferring your vote does not prevent you objecting to the plan.

Practical implications

We suggest a prudent creditor holding guarantees for the debts of companies should put a standard procedure in place to include:

  • Ensuring that all staff who may open post or receive emails from process advisors will forward such communication immediately to appropriate individuals.
  • On receipt of a notice that a process advisor has been appointed:
    • Providing an email address to the process advisor that will be monitored at least once in every 24 hours while any relevant SCARP is running.
    • Obtaining an email address for any guarantor(s) and agree that you may send any offer to transfer your voting rights by email. If that is not possible, as the section of the act is not very clear, it may be necessary to physically deliver any offer to transfer votes to the guarantor.
    • Drafting an offer to transfer your votes so that it is ready to issue, if required.
    • Deciding whether or not you wish to transfer your votes before receipt of the notice of the creditors’ meeting.
    • Monitoring notices from the process advisor and issuing the offer to transfer promptly, if appropriate.

Comment

The period provided in which to offer to transfer voting rights to guarantors is very short but it is more or less aligned with the period provided in examinership, taking account of the shorter overall period provided for SCARP. It requires action within 48 hours which may well require changes to normal business processes in larger organisations, or more traditional businesses, if rights against guarantors are to be preserved.

The content of this article is provided for information purposes only and does not constitute legal or other advice.



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