Cart before the horse?

Pre-Packs: What are they and what do they look like in Ireland?

Part 2 – Pre-Pack Examinership

What is pre-pack?

Pre-pack is the term used to describe a corporate rescue mechanism that allows for the potential sale or re-organisation of a distressed business to largely be formulated in advance of a formal insolvency procedure.

Admittedly, pre-packs are not as commonly known in Ireland as they would be in England and Wales.

The concept of pre-pack examinership

While the term pre-pack might more readily be associated with pre-pack receivership, the concept of a pre-pack examinership is somewhat the lessor known.

Essentially, the idea is that work usually undertaken during the examinership process is front loaded. Prior to the formal application to appoint an examiner, the focus is on forming proposals for the survival of the business. The approval and implementation of such is the typical goal of any examinership.

It does seem rather counter intuitive to the entire purpose of examinership that you would attempt to negotiate a scheme of arrangement in advance, particularly when the company is not “fully protected” by the court under the formal regime.

However, that being said, by having an element of co-operation from the start particularly with one’s investors and potentially even creditors, it does give an examinership process a greater chance of succeeding because all parties are invested at an early stage.  Thus, expectations are managed and the process becomes more streamlined and seamless allowing the focus to shift to the implementation of the plan and survival of the business.

It will not be for every company.  It must be assessed on the merits of each case (not least that the minimum criteria is satisfied that a company has a reasonable prospect of survival) and the risks weighed up, particularly the relationship which a company has with its existing investors, potential funders and even creditors.

Of course, a pre-pack examinership does not and cannot circumvent the usual member and creditor approvals or the necessity for applications to court. The normal process and typical formalities must still be abided by.

For a more detailed overview of the examinership process in Ireland, please read the following article:-

https://reddycharlton.ie/insights/covid-19-examinership-whats-involved/

What we can learn from our UK counterparts

Administration is the UK’s equivalent of examinership. Pre-pack administration is widely used by our UK counterparts.

A set of professional guidelines are in place for UK administrators (examiners) that relate specifically to pre-packs – The Statement of Insolvency Practice 13 (“SIP 13”) and The Statement of Insolvency Practice 16 (“SIP 16”).

SIP 16 was introduced in response to creditor concerns about pre-packs. SIP 16 is intended to provide creditors with more information and thus provides for greater transparency surrounding pre-packaged sales relating to administrations. SIP 13 is intended to address sales to connected persons and put certain safeguards in place for creditors.

The Irish experience

There are no guidance notes, practice directions or cases dealing with the concept of “pre-pack examinership” in Ireland. Were this to be successfully used as a corporate rescue tool in the same way pre-pack receivership is, it would most likely require us to adopt some of the practices which our UK counterparts have to provide greater transparency on how it would work and to give comfort to creditors and investors alike.

Reddy Charlton LLP advise on all aspect of corporate insolvency. For further information contact Elaine McGrath emcgrath@reddycharlton.ie