The interim period of the Companies (Miscellaneous Provisions) (COVID-19) Act 2020 ("the Act") has been extended to 31 December 2021 following government approval last week. The Act makes temporary amendments to the Companies Act 2014 to address the issues arising in connection with COVID-19.
Amongst other measures, the Act makes provision in respect of business survival for those adversely affected by restrictions by increasing the period of examinership to 150 days. Examinership is the process whereby an insolvent company is placed under the protection of the Court to allow an Examiner to formulate a scheme of arrangement with its creditors to ensure 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.
The continuation of this important amendment has been praised as providing additional help to businesses which may be struggling during the pandemic. It also recognises the importance of allowing viable companies to restructure and continue to trade through the crisis.
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.
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 under the Court's protection, and pursuant to the Act, the creditors of the company are prevented from taking any action to enforce any judgments or any security against the company for a period of 150 days. 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.
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.
If the Scheme of Arrangement is accepted by creditors and shareholders, the Court then 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.
Examinership has proved to be a successful means of survival for many companies struggling financially. At BHSM, we have extensive experience in advising and acting in examinerships both for the Companies themselves and for Examiners appointed to Companies. We also regularly advise creditors affected by Examinerships.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.