Small business rescue scheme becomes law

New legislation creates system that avoids need for court

Businesses will get protection from creditors while they go through the process. Photograph: iStock

Businesses will get protection from creditors while they go through the process. Photograph: iStock

 

Legislation to aid the rescue of small companies with cash woes came into force on Wednesday.

The Oireachtas passed the Companies (Rescue Process for Small and Micro Companies) Act 2021 earlier this year, creating a system to save otherwise viable small businesses with financial problems.

Businesses will get protection from creditors while they go through the process, which allows directors to appoint a process adviser to oversee the rescue without going to court.

The law came into force on Wednesday and applies to small enterprises, as defined in the Companies Act 2014.

Advisers will determine whether the company can survive, prepare a rescue plan and notify creditors and workers that the business is using the process.

Once the adviser has determined that the business has a reasonable prospect of survival, directors can vote to appoint him or her.

Advisers must then draw up a rescue plan within 49 days of appointment and conclude the process within 70 days.

Vote on plan

Creditors must meet to vote on the plan, which will be considered passed if a 60 per cent majority back it. It is binding if no objections are lodged within 21 days.

The issue can be referred to the courts if an objection is lodged within 21 days of the vote.

The Irish Small and Medium-sized Enterprises association welcomed news that the law had come into force.

Neil McDonnell, its chief executive, acknowledged that most insolvent small businesses cannot be saved. “However, the employees and owners of the 10-15 per cent of insolvent businesses which can typically be rescued deserve that second chance,” he said.