- 14 July 2020
- Posted by: Niamh Gibney
- Categories: Banking, Commercial Litigation, Company Secretarial and Compliance, Corporate Restructuring, Corporate Transactions, Covid-19 Updates, Insolvency, Litigation
Corporate Insolvency Options – Part 3: Examinership
This is the third of a four part series of articles considering various corporate insolvency and restructuring options.
Part 1: Liquidation – of which there are three types – Members Voluntary Liquidation, Creditors Voluntary Liquidation and Compulsory Liquidation
Part 2: Schemes of Arrangement and Compromises
Part 3: Examinership
Part 4: Receivership
PART 3: EXAMINERSHIP
The purpose of examinership is to give a company that might otherwise find themselves in liquidation, a fighting chance to survive.
It is a common misconception that examinership is a process to protect only the bigger players in the market and is not an affordable or viable option for smaller companies.
Ordinarily, this is a High Court application. However, a company qualifying as a “small company” can apply to the Circuit Court for the appointment of an examiner which is intended to make it a more affordable process for them.
Such companies must satisfy two out of three of the following conditions as it pertains to the preceding financial year:-
• The amount of the turnover of the company does not exceed €8.8 million;
• The balance sheet total of the company does not exceed €4.4 million;
• The average number of employees does not exceed 50.
A petition for the appointment of examiner can be presented by:-
• the company;
• the directors;
• any secured, unsecured or contingent creditor (including an employee); or
• shareholders representing 10% or more of the paid-up capital of the company.
The Examiner is an independent party appointed by the Court. In granting the order to appoint an Examiner, the Court must be satisfied that there is a reasonable prospect of the survival of the company as a going concern.
In order to seek the protection of the Court under Examinership, an extensive Independent Expert’s Report is required. This is one of the most important elements of the process and it must accompany the petition that is presented to court. There is a duty placed on the part of the petitioner and the professional preparing the Independent Expert’s Report to act in the utmost good faith in their respective responsibilities.
If a petition is successful the period of protection is 70 days but it can be extended by a further 30 days. During this time, the company is protected in the following manner:-
• no proceedings for the winding up of the company may be commenced;
• no resolution for the winding up may be passed or if passed shall have no effect;
• no receiver may be appointed;
• no execution against any property or effects of the company;
• no action shall be taken where any claim against the company is secured by a charge or other form of burden affecting the whole, any part of a property, effect or income of the company except with the consent of the examiner;
• no steps may be taken to re-possess good under a hire purchase agreement except with the consent of the examiner;
• where any person other than the company is liable pay all or part of the debts of the company, no execution or proceedings of any kind can be commenced against that person;
• no order for relief for minority oppression can be made;
• no other proceedings can be commenced save with leave of the court;
• any existing proceedings can be stayed on the application of the examiner.
For a more detailed overview of the examinership process, please read the following article: https://reddycharlton.ie/insights/covid-19-examinership-whats-involved/
Advantages of Examinership
• Write down of debts giving the business a chance at survival it may not otherwise have;
• Repudiation of certain contracts (includes leases);
• Absolute protection for the company during the protection period (see list above);
• Transparency – the provisions of the Companies Act 2014 strictly govern the manner in which Examinerships are conducted therefore assuring creditors, members and employees alike;
• Continuity of the business and protection of jobs – in the short term at least;
• The directors generally continue in their role unless the examiner forms the view that the affairs of the company are being conducted in a manner likely to prejudice the interests of the company or its employees or creditors or its expedient for the purposes of preserving assets of safeguarding the interest of the company then the examiner may apply to court to make such order transferring the powers of the directors to the examiner provided it is just and equitable to do so.
Disadvantages of Examinership
• It’s expensive for both the company and the creditors whether it is successful or not.
• Timing is everything – It must be considered in a timely fashion.
• There is no guarantee of survival.
It is an inevitable that examinerships will become a lot more prevalent. Reddy Charlton’s team advise on all aspects of an examinership and if this is something which you are considering, it is best to act sooner rather than later.
For further information on this topic, please contact Niamh Gibney at email@example.com