As the impact of the Covid-19 pandemic intensifies, the cost to businesses is likewise intensifying. Whilst it may be too early to assess the overall economic picture, it is clear that as the weeks progress many businesses, if not already, will face serious cash flow issues and come under pressure from creditors and possibly charge-holders. While it appears that there is a certain amount of forbearance being shown at this early stage, this may not be sustainable for many businesses who may be caught in a supply chain, are struggling to pay employees or who have been forced to close their doors for a period of time.
What is Examinership?
Examinership is a process available under Irish company law legislation which seeks to assist ailing companies and may be one which is called upon more frequently in the current economic climate.
Entering examinership is a step which may be taken by an insolvent company which is deemed to have a reasonable prospect of survival. It entails the company being put under Court protection for a period of time to allow it to continue to trade its way out of the difficulties which it finds itself in.
Presentation of Petition
A Petition is presented to the Court on an ex-parte basis seeking protection which, if granted, lasts for a period of 70 days, with the possibility of an extension up to 100 days. The Petition is supported by an Independent Expert’s Report. Such a report is an extremely detailed review conducted by an independent professional who is usually an accountant and who, having examined the company’s position, must be able to conclude that there is a reasonable prospect of the survival of the insolvent company if the examinership is successful and that it will also result in a more advantageous treatment of creditors than in a winding up scenario.
Scheme of Arrangement
If the Petition is successful, an examiner is appointed (potentially on an interim basis initially) who is an independent person who conducts a review of the affairs of the company and seeks to prepare a Scheme of Arrangement which aims to ensure the survival of the company.
The Scheme of Arrangement typically can involve the write off of some of the company’s debt, an extension of time for the payment of debt and the possible termination of onerous contracts and leases. The rescue package may also involve the investment of further monies by the existing shareholders or a cash injection by an outside party.
The Scheme of Arrangement once prepared is then put to the shareholders and creditors for approval. If this approval is granted, then the Court is updated and a hearing is held where the Scheme of Arrangement is presented to the Court and creditors are given an opportunity to make submissions on it. The Court has jurisdiction to approve, amend or reject the Scheme of Arrangement at the conclusion of the hearing. If approved, the Scheme of Arrangement is then deemed binding on the company, its members and creditors. If the Scheme of Arrangement is rejected, it is then within the Court’s remit to make an order to wind up the company.
Clearly the 70 day (or 100 day if an extension is granted by the Court) period can represent an important breathing space for a company seeking to get back on its feet. If there is a reasonable prospect of survival then this is an important process for a company to avail of which may assist in the saving of jobs.
While it is more usual to learn of large companies availing of the protection of the High Court through the examinership process, it is important to note that legislation passed in 2013 also brought in the examinership lite process which allows smaller companies to apply to the Circuit Court to seek an examiner’s appointment. This is an option for a companies with less than 50 employees and with a value of less than €4.4 million and therefore should be borne in mind as an option. This is an important alternative option for such companies to receivership or liquidation.
The current pandemic will undoubtedly lead to severe problems for many companies. It is crucial that companies are aware of the process of examinership as an option which can be explored in such economically challenging times.
Professional advice should always be taken before acting on any of the matters discussed. Please contact a member of our team should you wish to discuss this topic further.