Ireland: Examinership - Spring 2012

Last Updated: 15 February 2012
Article by William Day, Brendan Cooney and Kathleen Garrett

Examinership is a court enforced moratorium on creditor action which allows a brief period during which a company can be restructured. It is similar in many ways to the Chapter 11 procedure in the United States. In addition to the automatic stay on creditors' rights, the process involves the appointment of an individual (invariably an accountant) to act as examiner. The examiner is charged with formulating proposals for a compromise or scheme of arrangement between the company and its members and/or creditors ("Proposals"). The examiner has no executive role and the company's directors and management will remain in control of the company and of its day-to-day operations throughout the protection period.

Ireland is subject to the EU insolvency regulation (1346/2000) (the "Regulation"). Examinership is a reorganisation or rescue process and appears in Appendix A to the Regulation. Accordingly, examinership can only form main proceedings.

The procedure is open to any company having its centre of main interests ("COMI") in Ireland. A related company to the company placed in examination that has its COMI in Ireland can also be admitted to the process. The definition of "company" for the purposes of the related company provisions includes unincorporated bodies as well as non-Irish incorporated companies.

The automatic stay on creditors' rights begins with the filing of a petition in the High Court in Dublin. In general, this petition can be presented by the company, by the directors, by shareholders holding at least 10% of the company's issued share capital, by creditors or the relevant minister or regulator. The filing of the documentation occurs without notice to anyone and is followed by an ex parte application to the High Court for directions (which should include a decision by the court of COMI). Prohibited creditor action include the appointment of a receiver or enforcement of security, the repossession of goods on lease or hire, or supplied on retention of title, liquidation, etc.. The moratorium can last for up to a maximum of 100 days by which time the examiner must have formulated and circulated his Proposals, convened and held meetings of all classes of members and creditors effected by his Proposals and reported back to the High Court.

The first opportunity creditors have to express their views on the matter is at the hearing in respect of the petition. This High Court hearing usually takes place seven to ten days after the date on which the petition is presented and all members and creditors are entitled to appear and be heard at that time. The test applied by the court in deciding to appoint an examiner is, does the company and the whole or any part of its undertaking have a reasonable prospect of survival as a going concern. The court's interpretation of what constitutes a reasonable prospect has been quite liberal of late.

Once appointed, the examiner sets about formulating his Proposals, which would typically involve the introduction of new monies and the writing down of historic debt. The writedown under an examiner's scheme will normally leave each creditor (secured and unsecured) in no worse a position than they would have been in on a receivership or liquidation of the company (using the current realisable value of the assets).

The examiner must then convene meetings of each class of creditors affected by his scheme. The examiner will generally class creditors by reference to their priority for payment in a winding up, e.g. secured, preferential and unsecured. A minimum of three days' notice of the meetings is required and provided 50% plus one in number and value of the creditors represented at one impaired creditor class meeting vote in favour of acceptance of the Proposals, the examiner can seek the court's approval of those Proposals. This compares to the creditor approval required for a traditional scheme of arrangement were the approval of a majority in number of creditors (in every class) holding 75% in value is required.

The court then holds a further public hearing at which creditors who voted against the Proposals can be heard often on grounds that their interests are unfairly prejudiced by the proposals. The Supreme Court in the recent McInerneys case confirmed that the debt due to secured creditors could be written against their wishes, albeit not to a level below the value of the assets in a receivership or liquidation. This is likely to lead to "valuation battles" at the public hearing for the confirmation of the proposals with potential for the cross examination of expert witnesses. If the court confirms the Proposals they become binding on the company, its members and creditors from a date set by the court (no later than 21 days from the date of its decision).

Advantages of the process

Examinership has the following advantages as a form of restructuring:

  • The automatic stay on creditor action commences on the filing of the papers in the court office on an ex-parte basis and there is no secured creditor veto.
  • There is a low threshold for approval, i.e. 50%+ in number and value of the creditors represented at a minimum of one class of creditors.
  • Speed – the maximum 100 day protection period (which can be extended only in exceptional circumstances) should ensure that the restructuring takes place in a timely manner.
  • There are potentially huge savings to the company as the percentage writedown is based on the value of the assets liquidation/receivership alternative.
  • If approved by the court, the scheme becomes binding on all creditors, whether secured or unsecured and regardless of whether they have voted in favour of its acceptance or not. Accordingly it is far easier to achieve a restructuring in the face of opposition than in a voluntary arrangement.
  • Onerous contracts can be repudiated as part of the process.
  • The 100 day protection period extends to guarantors of the company's debts as well as the company itself, i.e. although demand can be made of a guarantor of the company's debts no enforcement can occur against them.
  • The related company provisions means all qualifying companies (and unincorporated bodies) can be dealt with in one application.
  • Examinership should be recognised in the US through Chapter 15 as well as being recognised in Europe under the Regulation.

Disadvantages

  • The procedure is only available to companies with their COMI in Ireland.
  • The moratorium is ineffective in relation to rights in rem by way of security in assets situated outside of Ireland.
  • The 100 day period may be too short to achieve a satisfactory restructuring in a particularly complex case (although this appears unlikely).
  • An examiner cannot be appointed if the company is already in liquidation or if a receiver has been appointed over the company's assets for at least three days.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

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