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Insolvency procedures

Procedures
What are the main insolvency procedures applicable to companies in your jurisdiction?

  • Examinership
  • Liquidation
  • Scheme of arrangement

Examinership – A financially distressed company can apply to the court for an examinership. If granted a moratorium arises and the court appoints an examiner who formulates proposals for a scheme of arrangement between the company, its members and its creditors. If the scheme is approved by the court and successfully implemented, the company returns to solvency. If the court rejects the scheme or, following approval by the court the scheme cannot be successfully implemented, the moratorium is withdrawn and the company usually goes into liquidation.

Liquidation – A liquidation can be commenced by an order of the court (compulsory liquidation), usually on the petition of a creditor or by a resolution of the company’s shareholders (voluntary liquidation). The liquidator realises the assets of the company and distributes the proceeds among the creditors in accordance with the priority set by law.

Scheme of arrangement – An application can be made to court to call meetings of creditor and members to agree a scheme by which claims against a company can be compromised or arrangements made by the company with its members or creditors. A scheme must be approved by a company’s creditors or shareholders by a majority in number and 75% by value of the relevant creditors or shareholders. On approval at a second court hearing the scheme is put into effect.

Moratorium
Can a company obtain a moratorium whilst it prepares a restructuring plan?

No – Irish law does not provide for any freestanding restructuring moratorium. As a result where a company requires protection whilst a restructuring is effected, it will generally avail itself of the examinership process which will provide for a restructuring moratorium of 70 to 100 days (as directed by the court).

Directors
To what extent do the directors of the company remain in control of its affairs during any of the above procedures?

Examinership - the directors remain in control of the company.

Liquidation - the powers of the directors cease and the liquidator takes control of the company.

Scheme of arrangement - the directors remain in control of the company.

Timeline to commence liquidation
How quickly can a creditor generally commence the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?

Six to ten weeks to appoint an official liquidator, depending on the caseload of the High Court. 

If there are serious concerns about preserving the company’s assets, a provisional liquidator can be appointed in 24 to 48 hours.

Overseas proceedings
Do your courts recognise insolvency proceedings commenced in the courts of another jurisdiction?

Yes – insolvency proceedings commenced in other EU member states will automatically be recognised under the EC insolvency regulation.

In respect of non EU member states, insolvency proceedings will not be automatically recognised but the courts have inherent jurisdiction to grant recognition.

Position of creditors

Forms of security
What are the main forms of security over movable and immovable property?

Security over immoveable property is taken by:

  • fixed charges
  • floating charges

Security over moveable property is taken by:

  • fixed charges
  • floating charges

Security over tangible property is taken by:

  • pledges
  • liens

Preferential status
Which classes of creditor are given preferential status? Are any classes subordinated?

The costs and expenses of examiners and liquidators have priority to all debts including secured debts.

Debts owed to employees are preferred to ordinary unsecured creditors. 

Sums due to the shareholders of a company are subordinated below the claims of unsecured creditors.

Treatment of foreign creditors
Are foreign creditors treated equally to domestic creditors?

Yes.

Termination of contract by reason of insolvency
Are contract terms permitting termination of the contract by reason of insolvency valid?

Yes.

Retention of title
Are retention of title clauses effective?

Yes, provided that the clause is properly incorporated into the contract and that the goods in question can be identified.

Setting aside transactions

Transaction avoidance provisions
What are the main transaction avoidance provisions, and who can challenge transactions?

The insolvency officer can challenge:

  • transactions at an undervalue
  • fraudulent preferences entered into in the six months prior to the commencement of insolvency (two years if the creditor is a connected party)

Position of directors

Risks for directors
What are the risks facing the directors of an insolvent company?

Directors can be civilly liable for breach of their duty (arising when they know or ought to know that the company cannot avoid insolvent liquidation) to minimise the losses suffered by its creditors.

Directors whose conduct indicates that they are unfit to be company directors can be disqualified from acting as directors.