Potential Steps to Survival: The Examinership Process & COVID-19

With an increasing number of businesses across all sectors facing significant loss arising out of measures imposed to deal with COVID-19, insolvency will unfortunately be inevitable for some.  Directors of insolvent companies should take immediate steps to review any prospect of survival, and accordingly, consider the process of Examinership.

Examinership is the process whereby an insolvent company is placed in the protection of the Court to assist with its survival. Where a company is, or is likely to be, unable to pay its debts and no resolution has been passed or order made for the winding up of the company, a petition may be presented to the Circuit Court or the High Court to appoint an examiner.  A petition for Examinership may be presented by:

• The company;
• The directors of the company;
• Any secured, unsecured, contingent or prospective creditor (including an employee); or
• Members representing 10% or more of paid-up capital of the company.

It should be noted that the Court will only make such an order if it is satisfied that there is a reasonable prospect of the survival of the company and the whole or any part of its undertaking as a going concern.  Therefore, examinership should only be pursued if a practical view is taken that there is a reasonable prospect that a company can survive if the period of protection is applied by the Court.

What is the effect of Court Protection?

Where an order is made by the High Court to put a company into examinership, the company is placed in the Court’s protection and for a period of 70 days from the date of the petition (which may be extended to a maximum of 100 days), the creditors of the company are prevented from taking any action to enforce any judgments or any security against the company.  During this period, no winding up proceedings may be commenced, no receiver can be appointed, no attachment or execution against assets, nor any attempt to repossess goods under a hire purchase agreement will be allowed as against the company in question.  Furthermore, no steps can be taken against any third party who has guaranteed the liabilities of the company.

Role of the Examiner

Once appointed, the role of the examiner is to examine the state of the company’s affairs, consider the viability of the company and, if possible, prepare a proposal (a scheme of arrangement) for the company’s financial survival.

Following the appointment of the examiner, the directors of the company remain responsible for the day to day management of the company which differs from liquidations or receiverships.

How is the Scheme of Arrangement dealt with?

The Scheme of Arrangement will be put to the shareholders and creditors for approval.  The Scheme of Arrangement will be deemed to be accepted by the creditors if passed by a majority in number and value of any class whose interests or claims would be impaired by the proposals.

Once voted on by the shareholders and creditors, the examiner must then report on the outcome to the Court.  If the Scheme of Arrangement has not been accepted, the Court will usually bring the examinership to an end and a receiver or liquidator may be appointed.

If the Scheme of Arrangement has been accepted, a hearing date will be set for the court to consider it.  Any creditor or member whose claim or interest would be impaired if the Scheme of Arrangement was confirmed, may appear and be heard at this hearing.  The Court has a discretion to confirm the Scheme of Arrangement, confirm it subject to modifications or refuse to confirm it.

If the Court confirms the Scheme of Arrangement, it will then fix a date for the implementation of the Scheme, which will not be later than 21 days from the date of its approval.  On the date of implementation, the role of the examiner ceases and the company is released from the Court’s protection.  The Scheme of Arrangement will then be binding on the company, its shareholders and creditors.  This includes shareholders and creditors who may have not approved the Scheme of Arrangement.  Measures which may be included in a Scheme of Arrangement include, the forced termination of onerous contracts or a requirement that a portion of the company’s debt is written off.

Although the cost of the examinership process must be considered at the outset, examinership has proved to be a successful means of survival for many companies struggling financially given the advantages offered by court protection.  At BHSM, we have extensive experience in advising and acting in examinerships and we would be happy to discuss the process with you during this difficult time.

How we can help

If we can be of any assistance or address any general queries you may have, please do not hesitate to contact Mark Homan (mhoman@bhsm.ie) or Sarah O’Toole (sotoole@bhsm.ie) in our Insolvency & Corporate Restructuring Department or by telephone on 01 440 8300.

This article is for general information purposes.  Legal advice must be obtained for individual circumstances.  Whilst every effort has been made to ensure the accuracy of this article, no liability is accepted by the author for any inaccuracies.