The examinership process is 30 years in use in Ireland this year.
2020 looks set to be a landmark year in the use and format of the process. The Oireachtas Special Response Committee for Covid-19 published a report called Stimulating Enterprise and the Economy on Friday 17 July outlining the importance of the use of examinership in Ireland in relation to the chance of survival for at-risk business.
The examinership process explained
Examinership affords companies struggling to pay their debts with protection from liquidation . The process seeks to help ailing companies by proposing a scheme with the objective of saving viable parts, or if possible, the whole company. This is facilitated by placing the company under Court protection for up to 100 days while an independent court-appointed Examiner appraises the chances of survival of the company and formulates a scheme.
To avail of the process, a petition must be filed with the High Court or Circuit Court(depending on the size of the company,) for Examinership with an accompanying independent expert report (including recommendations for the approach to be taken). The petition can only be presented by the company, its directors, a creditor, or shareholders possessing over 10% of the shares in the company. To appoint an Examiner, the Court must be satisfied that there is a reasonable prospect of survival of the company.
Once the examinership process has commenced the company is under the protection of the Court, no proceedings can be taken against the company, no receiver or liquidator can be appointed nor can any enforcement steps be taken against the company.
The Examiner will investigate the affairs of the company, prepare a compromise or ‘scheme of arrangement” which is a plan to facilitate the survival of the company. This may include termination of specific contracts, writing-off of debt, the surrender of property leases, capital injection, or further investment.
Any proposal made by the examiner must be approved by at least one class of impaired creditors (e.g secured creditors, preferential creditors, contingent creditors etc ). Once deemed accepted by at least one class of creditors the proposals are presented to the Court for consideration. The Court has power to alter, reject or confirm the proposals as they are. Once accepted the proposals are binding on all class of creditors affected by the proposals.
Ultimately a successful examinership will result in the company exiting from the examinership process in just over three months with no legacy debt and a viable future business. However, should the examinership process fail at any point it may lead to the eventual appointment of a liquidator or receiver.
Examinership and Covid-19
Master of the High Court, Edmund Honohan, has stressed the importance of examinership as a means of saving viable businesses during the pandemic. He stated that the process ‘isn’t being considered enough’, especially for small businesses.
We’ve seen over the past few months that the Courts are taking the unprecedented nature of the current pandemic into account when looking at various insolvent business cases. Examinership could be an option to help many businesses survive the current economic crisis.
About the author: Dermot McClean, solicitor on our Insolvency and Restructuring Team