Covid-19 – Examinership – What’s involved

This note is part of a series that the lawyers of Reddy Charlton will issue on the major legal, personal and business issues that will confront us all during the Covid-19 crisis.

Introduction

The restriction on businesses arising from Covid 19 may result in a significant number of otherwise viable businesses facing the threat of insolvency. Whilst companies may still be expected to meet their contractual obligations to funders, landlords, suppliers etc they may have seen their incomes reduced. Without corrective action this may result in otherwise healthy and profitable companies going out of business.  Examinership may provide a solution to facilitate the survival of such companies, and which will allow for jobs to be saved and a company to continue trading.

What is Examinership?

Examinership is a process whereby the protection of the court is obtained to assist the survival of a company.

The Examinership Process

• An application is made to court ex parte by way of petition. This includes an Independent Experts Report (“IER”)
• The IER typically details cashflow, liabilities and any funding requirements, and confirms whether in the opinion of the Independent Expert the company has a reasonable prospect of survivdal. The report should put before the court any conditions that may have to be met to ensure the survival of the company as a going concern.
• If the court is satisfied that the company has a reasonable prospect of survival then the court will likely place the company in interim examinership and allocate a date for the hearing of the matter.
• The hearing of the matter will allow creditors and other stakeholders such as Revenue to either approve, oppose or remain neutral on the appointment of an Examiner
• If the court is satisfied that the company has a reasonable prospect of survival then it will approve the appointment of the Examiner. This is subject however to the company not already being in the process of being wound up, or to a receiver not having been appointed for a continuous period of more than 3 days.
• The period of appointment is for 70 days, and which period can be extended to 100 days.
• This period of protection allowed by the court is designed to give the Examiner time to secure investment for the company and to put a scheme of arrangement in place for the settlement of debts with its creditors.
• A scheme of arrangement must be approved by a majority in value of at least one class of impaired creditor. A court should also be satisfied that no class of creditor is unfairly prejudiced by the proposals.
• A report containing the scheme of arrangement is then put before the court, and if satisfied the court will then approve the scheme.
• The company will then exit the examinership process and pay dividends to the creditors.

Conclusion

The examinership process affords a company an opportunity to tackle its liabilities, restructure its affairs and take corrective action to allow it to trade successfully. If an examinership application is unsuccessful then it is likely that a liquidator and/or receiver may be appointed to the company.
It is important therefore that a company facing financial difficulties considers examinership at an early stage, so that it has sufficient cash to trade during the period it is under the protection of the court, and before a scheme of arrangement can be agreed with its creditors and approved by the court.

How can Reddy Charlton Help?

During this Covid 19 crisis, Reddy Charlton Solicitors are eager to support, encourage and guide your business. For further information on this topic, please contact Brendan Sharkey on bsharkey@reddycharlton.ie