The 30th anniversary of the examinership process in Ireland is approaching and it’s a good time to reflect on the development of the process, where it stands now in Irish commercial life and the alternatives that exist.
Examinership is a corporate rescue process whereby the protection of the Courts is invoked in favour of a company in relation to its creditors. The aim of the process is to rescue companies where liquidation is a possibility but where there is a reasonable prospect of survival. It requires the sanction of the Court and support from at least one class of the creditors of the company. The fundamentals of the process have remained the same since its advent in Ireland in 1990 and with the passage of the Companies Act 2014. The process has proven a successful mechanism to secure corporate survival but it is important to note that it will almost always significantly write down the debt owed to a large proportion of creditors and result in change to the ownership and control of the corporate entity concerned.
The application for appointment of an examiner is not limited to the board of the company or the company itself. The petition can also be brought to Court by a creditor of the company or shareholders (holding 10% or more of the shares).
Whilst the process can involve a significant degree of complexity in assessing whether there is a reasonable prospect of survival and formulating an appropriate scheme of arrangement within the time permitted by the legislation (70 up to 100 days), there are five main stages to the process:
- Preparation of an Independent Financial Expert Report demonstrating that the Company has a reasonable prospect of survival if it can restructure its debts.
- Presentation of a petition to the Court and appointment of an interim examiner;
- Formulation of a Scheme of Arrangement for the survival of the company;
- The convening of creditors’ meetings for the consideration of and voting on the proposed scheme of arrangement;
- Court confirmation of the scheme of arrangement.
There are many well publicised recent examples of the examinership process successfully rescuing companies that would have otherwise floundered. They include:
- B&Q Ireland – where the process saved over 600 jobs.
- Pamela Scott Ireland – where the facility to renegotiate leases with landlords led to a considerable reduction in overheads.
Although many of the better known examinership cases have come before the High Court, since 2015, it has been possible to bring examinership petitions in certain cases before the Circuit Court.
While examinership is the best known and most frequently utilised legal mechanism for corporate rescue, there are less well known and less frequently used, alternatives.
It is sometimes feasible for a company to negotiate voluntary arrangements with its creditors. There is no statutory regime governing this process and it is essentially a process of negotiation but it can prove difficult to secure agreement from a range of different disgruntled creditors and consideration has to be given to the duties of the directors and the need to act fairly and evenly with the creditors of the company where it is potentially insolvent.
Schemes of Arrangement are provided for in the Companies Act 2014 and, in principle, are attractively straight-forward. This provides a statutory mechanism for a company to reach agreement with its creditors in relation to the restructure of debt obligations. A scheme of arrangement can be proposed by either a liquidator of a company or even the directors of the company. It is possible to invoke the protection of the court for the proposal of a scheme of arrangement and, similar to examinership, the court protection will shield the company from action by its creditors during the protection period. Where the company is solvent, creditors worth 75% in value and more than 50% in number must vote in favour of the proposal. The company need not be insolvent to invoke the process and the procedures differ somewhat if the company is insolvent.
Hayes have acted in connection with a number of successful examinership processes:
- Elverys Sports – where we advised the petitioning creditor National Asset Loan Management Ltd (NAMA) in what was then the first creditor petition for examinership since the inception of the process in 1990.
- McNally Opticians – where we advised the examiner appointed to formulate a scheme of arrangement for the company.
- Eirecomposites – we advised the Examiner in relation to a scheme of arrangements in connection with this aerospace manufacturer.