Monday, 12 July 2021
Companies (Rescue Process for Small and Micro Companies) Bill 2021: Second Stage
I am pleased to have the opportunity to present this Bill for the consideration of the House following its successful passage through the Dáil last week. The Bill provides for a genuine alternative to examinership for small and micro companies. It gives these companies the same access to corporate rescue as larger companies, thus providing them with a genuine opportunity to restructure their debts and continue trading.
In light of the economic impacts of the pandemic, the Government made a commitment to review the Companies Act to simplify and improve examinership laws for the small business sector. The Bill is a key commitment in the programme for Government and for me and is the culmination of a significant body of work by the Company Law Review Group, CLRG, and nearly a year's work by my officials and me, including significant consultation with business and industry representatives, with the support of Members of the Oireachtas. I thank the members of the Oireachtas committee in particular for facilitating the pre-legislative scrutiny phase. It demonstrated that, when we work together, we can achieve real progress.
The Bill delivers a new corporate rescue framework designed specifically for small and micro companies, which are key to our country’s economic success and recovery. The framework is an alternative to examinership that is more cost efficient and capable of conclusion within a shorter period. As our country emerges from the pandemic, the Bill will ensure that the necessary legal framework is in place to help viable small and microbusinesses stay in business. Delivering the Bill is reflective of the Government's continued commitment, as well as my own, to our small company sector and the jobs it provides. Where this sector and the companies that will be able to qualify for the process are concerned, it is worth noting that we are discussing 98% of companies, which support 780,000 workers. It is a substantial component of our economy. While I am hopeful that pressure on small businesses is beginning to ease with the gradual reopening of the economy, I recognise that many of these companies, while viable, will nevertheless continue to experience difficulties as we emerge from the crisis. In that context, the Bill is essential to provide these companies, where necessary, with a clearly defined and accessible rescue process that will give them the breathing room they need to get back on their feet.
The Bill's key feature is a novel process that reduces court involvement as far as possible with a view to speeding up the rescue process and reducing the associated costs. The small company administrative rescue process, SCARP, is initiated by the directors of the company concerned and can proceed without significant court involvement if the company’s creditors are positively disposed towards the rescue plan. The process is capable of conclusion within a shorter timeframe than examinership. Currently, examinership can run for up to 150 days. The new process seeks to arrive at a conclusion within 70 days, although this can be suspended where applications to court are required to allow the court the necessary time and flexibility to deal with the matters raised.
I will now outline the main provisions of the Bill. Part 1 contains the Short Title, commencement provisions and interpretation.
Part 2 inserts a new Part 10A into the Companies Act 2014 providing for the SCARP. This Part, which is divided into 12 chapters, details the legal framework for qualifying for, initiating and the subsequent operation and conclusion of the rescue process.
Chapter 1 defines relevant terms specific to the newly inserted Part 10A for the purposes of the operation of the rescue process for small and micro companies.
Chapter 2 sets out the requirements that an eligible company must meet to avail of a rescue plan. It provides that the process adviser, who is a qualified insolvency practitioner, must determine whether the company concerned has a reasonable prospect of survival. The chapter outlines various criteria that the process adviser may have regard to when making his or her determination on the company’s viability.
Chapter 3 provides for the appointment of the process adviser by a resolution of the company directors. The rescue process is commenced by a resolution rather than by an application to court. The chapter goes on to set out the process adviser’s various duties, for example, to keep the original determination as to the viability of the company under constant review and to give notice of his or her appointment to the Companies Registration Office, the relevant court and Iris Oifigiúil and on the company’s website. It also obliges the process adviser to give notice to employees, creditors and other stakeholders so that they are afforded an opportunity to disclose any fact they consider material to the process. In this regard, all relevant parties are involved from early on in the process.
Chapter 4 provides for the rescue plan process. It allows for repudiation of contracts where the process adviser considers it necessary for the survival of the company as a going concern. Repudiation allows the company, subject to court approval where appropriate, to accept or reject formally certain uncompleted contracts to which it is party. Any party to a contract that suffers loss or damage because it is repudiated becomes an unsecured creditor for the amount of loss or damage. The Bill provides for repudiation to be dealt with in two ways, those being, by application to court or through an out-of-court process led by the process adviser, who will engage and negotiate with the relevant party.
Under chapter 5, the process adviser is required to call a meeting of all creditors and members to present the rescue plan. The rescue plan is binding without court approval provided at least one impaired class of creditors votes in favour of the plan and no creditor raises an objection to the plan within a 21-day cooling off period. A rescue plan shall be deemed to have been accepted by a class of creditors when 60% in number representing the majority in value of the claims in that class vote in favour of the rescue plan.
Under chapter 6, creditors have the right to object to the rescue plan. Where that happens, the courts will have a role in adjudicating the matter, as is currently the case with examinership.
Chapter 7 provides for the treatment of liabilities of third parties for debts of a company using the rescue process and chapter 8 provides for the conclusion of the rescue process.
Chapter 9 incorporates safeguards for creditors such as various enforcement provisions in respect of failure by company directors and process advisers to comply with filing, notice and information obligations.There are also safeguards against, and penalties for, irresponsible and dishonest director behaviour. Chapter 10 sets out the various powers of the process adviser, chapter 11 provides for the remuneration costs and expenses of the process adviser and chapter 12 deals with matters of a general nature, such as the suspension of various time limits set out.
Part 3 of the Bill provides for miscellaneous amendments of the Companies Act 2014 necessitated by the introduction of the rescue process, such as additional cross-referencing throughout the Act. It also provides for amendments arising from the CLRG's first phase of work in the area of employees' rights as creditors under the Companies Act in line with the recently published plan of action on collective redundancies following insolvency. These are discrete amendments, which will improve the flow of information to employees as creditors during a liquidation and provide for a dedicated position for employees on the committee of inspection, a committee which may be elected to oversee the liquidation. Finally, it provides for the application of the temporary amendments made by the Companies (Miscellaneous Provisions) (Covid-19) Act 2020 to provide for meetings under the small company administrative rescue process, SCARP, to be held virtually during the Covid-19 period. I look forward to engagement with Senators.
I thank the Minister of State for his continued support and for his briefing on the legislation. I welcome this legislation, which is much needed and will play an important role in giving smaller companies an opportunity to survive as we emerge from this pandemic. We must ensure businesses have an opportunity to recover from the pandemic and that their long-term viability is not impacted by short-term issues caused by a crisis not of their making. There is so much focus on larger companies and foreign direct investment, which are of course important. However, we must always remember that small and medium enterprises, SMEs, the length and breadth of this country are the heartbeat of the Irish economy and that small and micro companies represent 98%, as the Minister of State alluded to, of all companies in Ireland.
Currently, at least five court applications are required to comply with the processes in an examinership. This, obviously, adds significant legal expenses to the process of getting court protection and makes it an unviable option for most small and micro companies because of the costs and timeframe involved, about which I will go into further detail. Allowing small companies with short-term issues to go through an administrative rescue process without the costs and challenges that are part of examinership will give them the best possible opportunity to trade their way back to solvency, which most of them will do. It is something that has been raised as a key need by business representatives with every Senator I am sure over the past 12 months. The commitment to providing SMEs with the most effective supports possible in the programme for Government meant it was essential this was addressed. I am pleased to see Government maintaining that commitment.
Certainly, in my heartland of Galway city, many smaller companies are facing challenges as we emerge from Covid in terms of short-term finance despite unprecedented Government supports, which I acknowledge. This scheme will be of assistance to many, thereby protecting employment and providing companies with the opportunity to emerge from Covid. The fact that there is also a shorter timeframe is essential for this process. That it can conclude within a ten-week period, rather than the 150 days which examinership can take, is also very important and welcome. The shorter timeframe is essential.
The legislation will assist companies that support in excess of 800,000 jobs in this country, that employ fewer than 50 people and have a turnover of less than €12 million per annum. These companies need help now and we must support them. The unprecedented supports the Government has put in place have been of great assistance. I speak to business owners in Galway city and county, and in the west, who acknowledge that. While they are very thankful for the wage subsidy, the Covid restrictions support scheme, CRSS, and the array of supports that have been given, we all realise these will eventually need to be tapered off. The ability of companies to restructure with minimal cost and red tape will make a very positive difference to them. The proposal has already received broad support, in principle, from stakeholders, certainly from people who have engaged with me. It must also be recognised that it has been supported, in the main, by Members in both Houses of the Oireachtas.
I know the Minister of State has a very busy schedule and I am not sure if he will come before Seanad Éireann again this week. If he does, that is okay, but I wish him and Aideen Ginnell, who are getting married this Thursday, well, and a long and happy life together. I have no doubt that Aideen will need great patience, which I am sure the lady has. She will need to have it as she knows the time constraints. I understand the restrictions are testing for all couples throughout the country. As wedding numbers are limited to 50, and Robert is from a family of 12, I do not understand how they managed it, but they are where they are. I take the opportunity, as I have no doubt the Leas-Chathaoirleach will, to wish Robert and Aideen the very best for this Thursday.
I wish Robert and Aideen a long and happy married life together. I hope everything goes well on Thursday. I have no doubt that it will.
I support this Bill. The proposals contained in it stem from a 2020 Company Law Review Group report, but I recall there were calls for legislation along these lines during the 2009-10 period when so many companies were failing for so many reasons, which we remember. I am not sure why this did not happen at the time although I presume it may have been because, at that time, the creditors of those failing businesses were the major banks which were themselves failing and were even banjaxed. It probably made little sense to change the law at the time since it would have been of little practical assistance to anybody. It is prudent and welcome that it is being done now.
However, it again shows the reactive nature of policymaking in this country. Just as the examinership process was introduced in a hurry in 1990 to save the Goodman beef empire from the consequences of its over-reliance on exports to Iraq, the proposals before us are a last-minute reaction to the problems faced by small business as we come out of almost 18 months of Covid cold storage. In particular, small businesses will have to face up to Revenue liabilities, which have been warehoused and put on ice during the Covid crisis. It should not have taken this looming problem to spur the Government or the Oireachtas into action. When it comes to the concerns of small businesses we should be thinking ahead more than we do, particularly when it comes to assisting those who are in difficulty through no fault of their own and providing them with a means to get back into health in a way that does not penalise anyone unduly.
The examinership process introduced in 1990 has been of great use since then in giving companies the breathing space to engage with creditors and formulate plans to rescue their businesses which may be in difficultly. However, clearly, it is not an effective process in all cases and is much less likely to be effective for, or appeal to, small and micro companies or to family businesses in particular. While the process is straightforward in theory, in practice it can be cumbersome, costly and, indeed, intimidating for directors and shareholders. Five separate court applications are necessary, from start to finish. This involves legal costs of course, but also other costs such as seeking reports from an independent expert and so on.
The Bill dubs this new rescue process the small company administrative rescue process, SCARP. The SCARP process can be commenced by a resolution of the directors and does not need the permission of a court. In the round, this removal of the court element requirement from a large number of company rescues will reduce the costs on businesses and the overall burden on directors, shareholders and creditors alike.
The timeframe of the process will also be much quicker, thankfully.Examinerships run for up to five months, which is a very unsatisfactory length of time for any small business to be put through the wringer. Under the SCARP, a scheme of arrangement will be drawn up within two months.
It is important that any new system not unfairly prejudice creditors of a business going through the SCARP. We have to remember that, in most cases, these creditors are themselves small businesses and may face their own pressures. The Bill contains good protections in this regard. The golden rule under the existing examinership regime is that, under a rescue scheme, creditors cannot be left any worse off than they would have been had the company been wound up through a liquidation. That rule is replicated in the Bill before us.
While the process is taken out of court to a large extent, creditors can object to the SCARP and insist on court approval first. That would deter against any attempt or possibility that the process would be used to evade or stymie creditors. If a business is in genuine difficulty, it will be in the interest of creditors to see this resolved, to see the business stabilised and to have the outstanding debts paid, so it is unlikely to be seeking court approval willy-nilly. This is important. The safeguards against dishonest or irresponsible conduct by company officers or practices such as reckless trading are to be welcomed.
Sadly, it seems to me, and no doubt to others, that there will inevitably be a significant rise in business failures in 2021 and 2022. Most of these will have been unavoidable. However, some will have been as a direct result of policy choices made by the Government. The greatest example, of course, concerns the pub, restaurant and hospitality sector, whose full reopening has been delayed by the Government recently, meaning the vast majority will have lost out on a summer season, which they will desperately have needed. I am aware of the good intentions behind the policy but I worry about whether the right call was made. I fear that when we look back at the decision to delay reopening in the cold light of day, the cost of it will be seen to have far outweighed the benefits, particularly given the advances we have made regarding vaccinations.
While the businesses have been kept on life support, there is a danger that they will be brought back to earth with a bang once the supports end. For that reason, we should do everything we can to assist them to rebuild for the future.
I welcome the Minister of State to the House. I hope he has a successful week. Covid might be the reason we want to get this legislation across the line for the summer but it has been a while in the making. It has been examined by the Company Law Review Group, CLRG, and that has involved analysis by practitioners, businesses, unions and academics. Prior to that, there was public consultation. The legislation fills a gap in our examinership laws. It is tailored to meet the needs of small and micro businesses, enabling those that are viable but vulnerable to restructure their debts and, hopefully, keep trading. There is no better time to do that.
Through a mix of grants, loans, tax warehousing and waivers, the Government has supported businesses as much as possible in the Covid crisis. The Government has been responsive to our calls when we have identified gaps in supports, be they for the self-employed, small businesses or those availing of the Covid restrictions support scheme. Many a support has come online over the past year. Despite those supports, some companies still find themselves struggling. Of the businesses that commenced an insolvency process last year, only 5% went through for examinership. Under the proposed new mechanism, small firms facing insolvency will be able to cut debt with support from a majority of creditors without the high costs and will be able to do so in a shorter period.
The amending legislation today represents a commitment made by the Government to look beyond practical supports and review the Companies Act and regulatory framework to simplify and improve our examinership laws, specifically for the small business sector, and to try to ensure those businesses that can survive will do so, not just during the pandemic but beyond.
There are two key areas in the delivery of this new corporate framework, that is, cost and time. The international framework for examinership is overseen in the courts. This is expensive and prohibitive for small, struggling companies. It is not realistic for a small company to engage in this way so we have to address the barriers so it can access protection and support and retain the jobs we desperately need. This Bill would oversee a process that would reduce the involvement of the courts as much as possible and speed up the rescue process.
The aim is to reduce the examinership timeframe from 150 days to 70 days, although there is flexibility to accommodate the courts. The cost could be lowered from between €80,000 and €100,000 to between €20,000 and €50,000. The SCARP is initiated, importantly, by the directors of the small and micro businesses and can commence and proceed without significant involvement of the courts. It is commenced by resolution of the directors rather than an application to the court, and is overseen by a process adviser. While taking into account the vulnerability of the business in receivership, it must also be fair to the creditors who, as my colleague Senator Mullen said, are often small businesses themselves. Creditors will be able to vote in favour of the proposal as long as no creditor raises an objection to the plan within 21 days following the vote. Small companies have to be competitive and agile in respect of how they react to the reality of business, and the proposed framework complements that. Ultimately, the process has to be more successful than the liquidation process or it will not work.
I would like clarification on virtual annual general meetings. Is it just for companies going through the process or is it in general? Small companies, in particular, need to be productive. It has been recognised that this is the area we need to work on. Virtual annual general meetings can facilitate a more efficient way of working. We should consider this if it is not included.
SMEs are often referred to as the backbone of the Irish economy. It is only right, therefore, that they would have equitable access to rescue processes. Our small business sector represents our neighbours, partners, brothers and sisters and, in my case, the parents of our children's friends. There are 800,000 employees in the sector, and 78% of the companies operate in areas that are hit especially hard by the pandemic, such as leisure, tourism and hospitality. Let us get through this pandemic and leave our company law in a better place than we found it.
Cuirim fáilte roimh an Aire Stáit. I welcome this Bill, or these amendments to an existing Act. The legislation is great. As a coalition Government, we agreed we would introduce it under the programme for Government. A year on, we are delivering on that, which is really positive. Now, as we hope for some sort of post-pandemic Ireland, is an important time to do this.
The main objective of the Bill is to provide for a stand-alone rescue framework to help small businesses of up to 50 employees to remain in business during periods of temporary difficulty. On Senator Mullen's question as to why we did not do this sooner, nobody saw the pandemic coming. Considering we are still in it, it is not bad that, a year on, we are delivering on that. Small and micro enterprises comprise 98% of all Irish firms. I have spoken about SMEs in Ireland but we do not really appreciate the number of jobs and the amount of money they generate. When thinking about that, we should always bear in mind whether it is a small or micro company that we are supporting. Wherever possible, we always should support them. As the preceding Senator said, 800,000 people are employed in the sector. Many businesses in the sector have been damaged by what has happened in the pandemic. Retail, tourism, the arts, hospitality and the service industry, which are really strongly represented in my county, Clare, have been affected. We have all seen at first hand the challenges small businesses have faced. This Bill is so important because it will hopefully help them find a rescue plan that will cost them less, keep more of them afloat and make it easier on them rather than having them get caught up in courts. We are all aware of how complicated and costly courts can be. This Bill is an important amendment to the 2014 legislation.
Chambers Ireland, the Irish Congress of Trade Unions and ISME were all involved in the consultation on this Bill so it is not as if we just tore into it. There was really good consultation with many people. It is on listening to those in the sector we are trying to save that we come up with proper solutions, which is what this Bill is doing.I only became the spokesperson for enterprise, trade and employment one year ago but in that year I have been combing through everything that has been happening in government to see what it has been doing for that sector. It has been really impressive to see the amount of supports, grants, advice and mentoring that has come through every sector and especially for small businesses through the local enterprise offices. It is a real sign we value that sector of society so much in that so much has gone into that sector in the past year.
I have had businesses complain they cannot keep up with all the supports and they are so busy working, they have not got time to find them all. To that end, I have put together a PDF document of every single support available to small and microbusinesses in Ireland, with live links. I will give it to every Senator here in order that we can share it with all the small businesses. Anybody who runs a small business will tell you he or she does not have the time to be looking things up. I find departmental websites quite daunting to navigate at times. It is good we get that Bill and the information out there on all the supports we have put in place for small businesses. There are some really good ones.
I have seen businesses that were never online before coming online and businesses that never use social media or PR tools really upping their game. People are discovering small businesses that may have been there for years. Thanks, in some kind of twisted, positive way to the pandemic, they have a presence they never had before. People are discovering businesses in their areas that they now support. That is thanks, in no small way, to the supports we have brought to date. This is another stepping stone in hoping we can try to keep as many small businesses going and not just surviving, but thriving again, post pandemic.
It is nice to see the Minister of State and I wish him well for his big day on Thursday. There is more or less unified agreement that there has long been a need for the examinership-lite model and that is what the small company administrative rescue process Bill attempts to deliver. There are many welcome aspects of the Bill, which outlines the small company administrative rescue process. However, the success or failure of the process will boil down to two things, namely, speed and cost.
The new process must not only be cheaper than the current administrative process, which is estimated to cost an average of between €80,000 and €120,000, but also needs to be quicker. It is hoped the new process will reduce the costs to between €20,000 and €50,000, which is extremely welcome. Any reduction in costs will be welcome if we can achieve it. However, these costs are only estimates and my concern is that in practice, they could end up being much higher.
As for the length of time the new process will take, it is estimated there may be little reduction in the length of time it takes to conclude the new small company administrative rescue process in comparison with normal administration. As outlined in the legislation, the process could take up to 49 days to produce a rescue plan and it could take even longer to implement it thereafter. At its core, this legislation is about saving companies and, ultimately, saving jobs. Therefore, I feel there needs to be further provision for workers.
It is important that a rescue plan for an eligible company does not include a reduction in the number of employees unless this has been done by agreement with employees and their recognised trade union or representative body, save in the case of a voluntary redundancy process. Any rescue plan should make provision to ensure collective agreements can be and are honoured regardless of what happens to the company into the future.
While this legislation may not get the same coverage as other legislation because it is relevant only to small and micro companies, it is important to remember that these companies provide employment to 788,000 workers in this State. This is significant legislation which, it is to be hoped, will have a wide-ranging and positive impact. The reality is that the pandemic has taken a significant toll on the economy in general, but especially on small and micro companies.
Once Covid-19 restrictions ease this summer and Government support and creditor forbearance reduces, it is clear that a cost-effective restructuring process will be required. Numerous companies with sound business models incur significant debts for many reasons. This new process must put those businesses and their workers front and centre and ensure this new process is cheaper and quicker.
We are discussing liquidations. I need to mention the Minister of State has a report on his desk, the Duffy Cahill report, for many years now. Provision must be made to look after workers in a liquidation scenario. We have had Clerys, Debenhams and TalkTalk closures and a list of other examples. We have seen closures in Limerick at Debenhams and a recent announcement of the Gap store closing in Limerick in September, with the loss of 26 jobs.
Every time this happens, we say we cannot allow it to happen again. I urge the Minister of State to act on the recommendations and select whatever is the preferred option and to talk to the Opposition. We will not do anything other than try to be constructive and get this done. We need to ensure workers are not left high and dry by the process because that will not do anyone any favours. This process will benefit companies and its ultimate objective is to save the businesses and jobs.
There is another body of work to be done to ensure those jobs are decent jobs. That is the work of the trade union movement, working co-operatively with progressive parties like Sinn Féin to ensure we can make work better. We need to recognise that while we have legislation to help save businesses, we also need legislation that protects workers in a liquidation because very often they are left aside.
I wish the Minister of State and his future wife, Aideen, the best for Thursday. It is unfortunate that on Sunday the Lilywhites will come between the celebrations but that is the way it has to be. There is no doubt the aims of this Bill can be considered reasonable. The objective is to put in place a small companies administrative rescue process, SCARP, to effectively reduce the number of companies that go into liquidation and instead give them access to an affordable rescue plan. There can be no doubt but that in a Covid-19 Ireland, many companies are struggling and, unfortunately, are struggling to survive. Every effort must always be made to ensure companies, under the pressure of Covid-19-related debts and commitments, have a choice to avail of the new SCARP provided for in this Bill, rather than liquidation.
In the Dáil, our enterprise spokesperson, Deputy Ó Ríordáin raised a number of concerns and issues with the Bill, which I would like to raise once again with the Minister of State. The first is the speed at which the Bill has been brought forward. This Bill is more than 60 pages long and is set to become the bedrock of legislation in this area for the considerable future, if passed. In his contribution in the Dáil, Deputy Ó Ríordáin posed a question as to the compliance of this Bill with European Directive No. 2019/1023.
Directive No. 2019/1023 is, as we know, an alternative to liquidation for companies of all sizes in all European countries, which will reduce the current level of liquidations. This offers the same function as it is hoped will this Bill. We are told the Government has asked for a derogation until 2024 for the implementation of this directive, yet we have before us the ideal opportunity to implement legislation that would comply. It would seem the question remains as to why the Government will not make this legislation compliant and I ask the Minister of State to address this important point. As was said in the Dáil last week, surely it would be far safer and more effective to make this Bill before us now compliant, rather than try to make amendments at some future date.
Given the recent events throughout various sectors of Irish industry, which have already been referenced by colleagues, I have to raise my concern as to how this Bill, if passed, will treat workers. My colleague submitted a number of amendments that were not accepted in our attempt to address what we see as some flaws in this legislation. Those concerns remain and given the time afforded to this Bill, those concerns remain for the workers.
As mentioned in the Dáil, the legislation, unlike similar legislation in New Zealand, does not offer enough protection for workers. This Bill does not offer the protection, unlike that passed in New Zealand in which workers are excluded as a protected class of creditor. Under section 558N, any equality claim should be excluded from the court's power to stay proceedings and under section 558L unpaid awards to workers should be excluded from write-down without the need for a worker to actively assert that right as a creditor.
There must be a fear for some sectors of Irish industry in which workers are unrepresented by a union that workers' rights, without the explicit protection of a unique class of creditor, could be subject to some exploitation. There may be a situation in which workers' terms and conditions could be attacked or undermined as part of the offence of owners' contracts, as was threatened in a recent dispute. I want to raise again the time afforded to the Bill. We obviously accept the situation we are in, especially those businesses, as I have already outlined, but speed can often lead to more problems than anticipated and we hope this is not the case.
As we said in the Dáil, we wish we could give unqualified support for the Bill. There can be no doubt cheaper and easier access to a rescue plan would always be preferable to liquidation but in light of the issues I have once again raised with the Minister of State, we worry there may be flaws and it may be the workers who will end up being exploited most if these flaws are not addressed. I thank the Minister of State once again for joining us today and look forward to his replies.
The Minister of State is welcome. Before I start, I wish him and Aideen all the best for their wedding day on Thursday and a long life together. I welcome the Bill. I come from a small business background and I am aware of the plight of small businesses, especially in times of Covid. We are starting to come out the other side. I have been working with many small businesses that are either feeling the pinch or have found recovery hard. The Bill comes at an opportune time, and the fact that we are updating the 2014 legislation is most welcome. Some 778,000 workers are employed by small companies. I know that we have to protect employees but unless we can protect the companies they are working for, they will not have any companies to be employed by. That is something we have to keep in mind.
Many small businesses, especially across the hospitality and service sectors, have really felt the pain. As has been mentioned, while there has been a delay to the opening up and expansion of the hospitality sector, many businesses have not been able to open because they did not have outside facilities. I welcome the fact that Cabinet is looking at opening up these businesses. The fact that 17 companies made submissions to this shows that there was a real interest in it. I know that key stakeholders engaged with it as well. The fact that small businesses have an equal footing with some of the larger companies is to be welcomed. The period of examinership has been reduced from 150 days down to 70 days and the costs are being kept down as maybe the cases are not appearing in court. Some of the financial institutions have not been good in working with small businesses and that is what I am finding from listening to them. This Bill will strengthen the foothold of small businesses. Senator Gavan referred to Debenhams and Gap in Limerick. Both of those businesses closed and many employees were hit by that. While I know that Debenhams is a bigger company and it has a bigger sister company, Gap in Limerick had fewer than 25 employees. It ended up being closed down and the staff did not get a lot out of it.
The rescue plan has been put in place and it should be binding on all members and creditors where it is approved by 60% in number of one class of impaired creditors representing a majority in value of the claim. This is referred to as a cross-class cramdown. The process does not require an application to the court in circumstances where no creditors object to the plan. These are most welcome because any of the small businesses I have been talking to are really appreciative that these changes are being brought in. I want to wish the legislation all the best because it is good that small businesses are being helped along the way. I compliment the Minister of State and the Tánaiste on all the work they have done on this and for seeing any problems that small businesses are facing. I wish the legislation safe passage.
The Minister of State is welcome to the House. According to the Central Statistics Office, CSO, there are nearly 1 million people employed by SMEs in this country. According to the Economic and Social Research Institute, ESRI, and the Central Bank, a quarter of these SMEs could be vulnerable to liquidation. Employment and livelihoods are at risk and the small company administrative rescue process could be vital in saving many of them. It is important to make one thing clear: the Bill before us does not solve this issue. In some instances, the rescue process will only kick the problems that SMEs face further down the road. With continuing lockdowns, mass uncertainty and no clear policy or guidelines coming from the Government, however, the Bill is vital. According to a regulatory impact analysis that we received in respect of this Bill, the World Bank is clear on one thing: there is no consensus on an optimal insolvency model specifically suitable for SMEs. Our insolvency rates are low but according to further World Bank commentary, it took 13 quarters from the onset of the financial crisis in 2007 before OECD countries reached a peak of insolvent liquidations. On foot of that, it is prudent to establish an efficient insolvency regime in this country because the worst is yet to come for SMEs and their employees.
While the Bill may be necessary in light of the state in which SMEs find themselves, the question must be asked as to whether we are looking at a real solution or if we are continuing to patch up a problem that we have created. The problem is lockdown - the State's intervention in the normal operation of our economy - and the continued uncertainty, with no co-ordination and unfair treatment of businesses. Some 78% of SMEs operate in sectors that are moderately or highly affected by the pandemic. These are the sectors which the Government and NPHET called non-essential. I would like to remind everyone that there is no form of employment or business that is non-essential. There is a complete lack of respect from this Government and public health toward SMEs. While this Bill would help viable companies survive, it would not help all the companies affected by the Government's policy these past 18 months to survive. It is too little, too late.
There are zombie companies operating in Ireland. These are companies that are not viable, that cannot service their debt in a growth economy and that the rescue process will not save. However, we will pump them with support under the false illusion that an end is in sight. These companies are already dead; we are just keeping them alive with life support. This is a positive end for some but many will not survive. Where is the end? Where is the plan?
We are considering this Bill and the Finance (Covid-19 and Miscellaneous Provisions) Bill today, both of which are designed to help business as we emerge from the pandemic. Are we emerging from it? We select dates for reopening and then we change them. There is no clear plan or goal and, in the meantime, we are passing legislation that is designed to keep the show on the road. The show is over for many companies. Even if it is not over and even if the rescue process will help them survive, the headache, heartache and hurt that the rescue process will cause for creditors and business owners is nothing to be commending. The companies Bill is necessary and the rescue process is more accessible to SMEs than examinership is but at the end of the day, we have failed businesses in this country. This process will save some businesses and it will not save many which, if we had treated them as essential and important, and as they deserved to be treated, would not require the rescue process.
I welcome the Minister of State. As he embarks on another collaboration this week, I wish him and Aideen the best of good health and happiness in the times ahead.
The Bill is extremely welcome. As the Minister of State indicated, the purpose of it is to save companies and protect jobs, which is hugely important. Kildare County Council, together with the local enterprise office, LEO, and County Kildare Chamber, published its economic strategy last week for attracting new investment and sustaining industry and enterprise and ensuring long-term sustainable goals. When we look at the statistics in that strategy, we can see that small businesses make up 92% of the active businesses in Kildare. That is incredible. Some 92% of the rates we receive in Kildare are from the type of business the Minister of State is looking to support. While Kildare has the second highest level of foreign direct investment in the country, the fact is that 92% of our small, family run and local businesses will be helped by this is noteworthy.
While our rescue framework of examinership is internationally recognised and successful in its own right, the associated costs mean that it may well be beyond the reach of small enterprises and microbusinesses.This Bill ensures that there is an alternative framework. Speed is the essence in this process to reduce bureaucracy for small businesses. From talking to small businesses in Kildare I am aware that is one of the biggest problems they have. I welcome the work done by Senator Garvey in producing a document so that we have all the information. I often get calls from people who raise the myriad administration and paperwork to add to the hard work people put in every hour that they can to keep their businesses sustainable and afloat. The form-filling and applications add to the plethora of work involved. For that reason, the Bill is very welcome.
Companies right across the country continue to feel the negative impacts of the pandemic on the normal operation of business. It has been most difficult for people. However, we have also seen the flexibility of small businesses who have looked around and become creative in terms of what they can do. Evidence from the 2008 recession highlighted that small business creation was the key driver in the recovery of the economy and in creating the majority of new jobs following the recession. Therefore, while revenue has fallen for a large proportion of SMEs since the onset of Covid, exploiting new opportunities has been and will be a key focus.
The report of the SME task force highlighted the importance of entrepreneurial spirit to Irish society, not just in economic and employment terms but in creating a resilient, innovative community force. Local businesses are our local champions. They make a hugely important contribution to developing a resilient society. I listened recently to a podcast by David McWilliams in which he spoke about the importance of developing an entrepreneurial spirit in young people at school. That has led to success in countries such as Germany. We tend to emphasise service-driven jobs more, but by putting measures such as this in place, the Minister of State, Deputy Troy, is advancing and making more attractive the opportunity for people to be entrepreneurial. Covid and Brexit together have highlighted vulnerabilities in the small business sector, but the opportunity is also there to show how quickly it has been to adapt and show resilience and flexibility. Among the key measures the State must take is to accelerate high-speed broadband, develop remote working hubs and bring in measures such as the Bill before us.
I welcome the Minister of State, Deputy Troy, to the House. I also welcome the Bill, which represents a lifeline for small and medium-sized businesses and gives them the opportunity to restructure their debts and allow them to continue trading.
Throughout Covid, the Government has introduced numerous schemes to mitigate the impact of the pandemic, which have been very successful, but a lot of business owners were under severe pressure with regard to the liquidity and sustainability of their business. This was particularly felt among the small and micro companies who employ more than 750,000 people in sectors such as retail, service and the hospitality industry, industries which have been severely affected by Covid-19 over the past 15 months.
It is hoped to reduce the cost of the rescue process to between €20,000 and €50,000. However, this can still be prohibitive to some small companies. I hope that some mechanism can be put in place to deal with this issue.
A number of factors continue to cause concern for small business. One of those is public liability, where a high percentage of businesses still have high premiums despite being closed, and a large number are now receiving significant premium increases despite a reduction in claims. I welcome the work done by the Government in recent times, but the fact is we have an insufficient number of underwriters in this country for public liability insurance. We must ensure the viability of small and micro businesses post-Government supports, so it is necessary that we tackle this issue immediately.
The second factor is high rents. The Small Firms Association has pointed out that the greatest risk of insolvency comes from overseas contracts, in particular leases with rents exceeding current market rents. Post-Covid, some categories of rent may fall, as less fortunate businesses close, which would mean new entrants would have a distinct advantage, as well as large companies that can avail of examinership. Most, but not all, landlords will reduce rent to market levels. We need a mechanism to allow businesses to exit unaffordable rent that may be above market levels.
I also want to mention the numerous schemes that have been expanded in recent years, which I welcome, from paternity leave to sick leave, the increase in the minimum wage and increased regulations. Business owners would love to implement all these schemes, but for a significant number it may make their business non-viable. We must discuss these extra costs and also what is being proposed in terms of future taxes on employers.
It is also important that we protect the small and micro firms who may be creditors of a business that enters this process. It is key that the rescue plan satisfies the test on ensuring the best interests of the creditor, which must provide the creditor with a better financial outcome than if the company in question were liquidated while also ensuring its viability into the future.
Ultimately, this legislation is about saving companies and saving jobs while also looking after workers' rights. It has never been more important for local people to support local industries and the local hospitality sector. I am working on a project with Longford Chamber of Commerce and Industry, traders' groups around the county and the county tourism committee to develop a Longford voucher card. We are trying to get all businesses in Longford involved in it. We hope that all companies will purchase gift cards and that when they are purchasing gifts for Christmas, they will purchase a Longford card that must be spent in Longford. That will keep the money within the county.
I welcome the announcement by the Minister of State, Deputy Troy, this morning on the 60 jobs to be provided by the Ardonagh Group in Mullingar. I look forward to more such announcements in future over his term in the Department. I hope a few jobs will come across the county boundary into my county of Longford, where he has done a lot of work since he was elected to the Dáil in 2011.
I extend my best wishes to the Minister of State and to Aideen. I was unaware that his wedding was coming up this week until it was mentioned. I wish him well and good health to both of them in the future.
If I miss any specific questions that were raised, I will come back to them. I took note of them all.
I thank everybody for their good wishes. I will pass them on to Aideen later. I am not sure she would have expected her name to be bandied about in the Seanad today but that is the price one pays for being married to a politician. She will welcome the good wishes, but I am not sure she will welcome her name being mentioned in the Seanad. I thank all for their good wishes, which I appreciate.
I also thank Senators for the positive commentary on the Bill before us today. Many speakers rightly pointed to the significance of the SME sector to the economy. Depending on the report one reads, the number of people directly employed in the sector ranges from 800,000 to 1 million people. It is crucially important to the economy. That is the reason I prioritised this piece of legislation when I was appointed Minister of State. That is also the reason it was a priority in the programme for Government. Some have asked why it did not come in years ago and why it has taken so long, while others have asked why it is being rushed.
The Company Law Review Group initially examined the matter. That body has the necessary expertise from a legal perspective in insolvency and company law, but there is also representation from the trade unions who ensure employees have a voice in the negotiations. We conducted public consultations and we received approximately 20 substantive submissions on the matter. The process was also aided by the good work of my officials and the Office of the Attorney General.I again thank the Oireachtas committee for waiving pre-legislative scrutiny to ensure this Bill came before the Oireachtas before the summer recess. It is so important that this Bill is enacted because we are talking about ensuring that viable businesses have the opportunity to restructure in a cost-efficient and timely way. It is about protecting viable businesses and giving them the opportunity to restructure in a cost-efficient and timely way. While the existing examinership process is internationally recognised as a very good one, the cost of it is prohibitive for many of our smaller businesses. This will no longer be the case.
I take issue with one point mentioned, which was that businesses were not supported but were neglected and thrown to the winds by the Government. Nothing could be further from the truth. The Government did not take decisions to bring in restrictions lightly. It took decisions to bring in restrictions based on public health advice to protect the public health of our citizens. In doing so, a range of supports were put in place, such as the CRISS, the restart and the restart grant plus schemes and the wage subsidy. In July of this year, various bodies representing industry requested that certainty be given to those schemes and that is what has happened.
We now want to ensure that we come out of that. It is true that we were unable to meet a deadline, or an aspirational date, given a number of weeks ago. However, in the last two weeks, representatives of the hospitality industry, whether they were vintners, publicans, hoteliers or restaurateurs, worked collectively with Government and officials, for which I compliment them, to bring about a workable solution to ensure that as many people as possible can go in to premises and these businesses can reopen in a safe environment. That goes to show the determination on this side of the House to protect public health and to also ensure that we protect jobs and businesses. That is the sole aim of this legislation.
A number of queries were raised. Senator Mullen mentioned the protection of creditors because some creditors are themselves small businesses. There is a provision within the legislation that if a creditor is unhappy with a decision he or she can appeal it in the courts, so creditors are protected.
Senator Currie mentioned virtual AGMs. These are a temporary measure brought in as part of the Covid Bill in 2021, which has been extended to the end of this year. SCARP will also benefit from that Bill until the end of this year. At this time, a decision has not been taken to make virtual AGMs permanent because there are questions about whether shareholders are afforded the same adequate scrutiny they receive at a physical shareholders' AGM. Virtual AGMs have been extended on a temporary basis until the end of the year while further analysis is conducted. They are there until the end of the year, but we will have to make a decision on whether to further extend them before the end of this year.
I compliment Senator Garvey on the work she is doing. In our Department, we are working with an SME task force to ensure there is a one-stop portal where businesses can go in future to ensure they are acutely aware of all the supports that are available. The Senator is right in stating that there are many supports out there. Some supports have even helped people to diversify into new areas and businesses. I was surprised and struck by how many businesses took an opportunity from the challenge. Some businesses have done better in the past 18 months and more luck to them.
Senator Gavan mentioned timeframes. The 49-day timeframe was deemed to be fair since adequate notice periods have to be given to creditors and the process adviser must be given adequate time to do his or her work and bring forward a restructuring plan. If there is no need to go to court, 49 days is the outer time limit. If things are not complicated, there is nothing to say that the process cannot be concluded within a shorter timeframe.
Senators Gavan and Wall raised the issue of employees as creditors. Under the SCARP process, employees have the same protections they have under the examinership process. There is no difference or dilution of employees' rights in this process as is the case in the examinership process. Both Senators also raised, as did Senator Byrne, the issue of collective redundancies. The Minister of State at the Department of Enterprise, Trade and Employment, Deputy English, and I have been working on this issue for the last 12 months. I acknowledge the contribution of the Irish Congress of Trade Unions, which has been working with us. We published a plan of action on collective redundancies in June of this year. Some of the suggestions in that plan have been included in this Bill but the key element of the splitting of company assets is under review at the moment by the CLRG. It is envisaged they will report back to us in the autumn of this year. It is my firm intention that the recommendations that emanate from the CLRG will be implemented in a timely fashion.
Senator Carrigy acknowledged the announcement today of 60 jobs in Mullingar. It is a very positive development and it goes to show that there is an emphasis on ensuring investment in the regions. The regions benefit from these types of job announcements because they offer a whole suite of incentives for businesses. Mullingar is a good place in which to work and live, with many amenities, and it also has all the necessary infrastructure that is present in any other part of Ireland. It is a very welcome development in Mullingar. I assure Senator Carrigy that the Industrial Development Agency, IDA, plan launched in January of this year placed a major emphasis on ensuring that 50% of all new IDA investments under the lifetime of its 2021-24 plan will be concentrated on the regions. We are determined, as a new Government, to ensure balanced regional development. I assure the Senator that Longford is foremost in my mind, as it is in his. I have no doubt we will also have good news for Longford in the not-too-distant future. If we in the Department can be of any assistance in rolling out his scheme, which is a very good scheme and I wish him luck with it, we will be only too happy to help.
I again thank Senators for their contributions today and for contributing so positively to the scheme. This scheme will make a real difference to our small and medium-sized enterprises that are viable but, because of the hugely challenging trading environment they have had to endure over the past 18 months, need an opportunity to restructure. This Bill will give them the opportunity to come out from under a shroud of debt, to restart, save their businesses and, just as importantly, save jobs that are reliant on those businesses. I understand we are bringing the remaining Stages of this Bill through the Seanad tomorrow so, hopefully, we will be able to conclude it in advance of the summer recess.