Option Three: Examinership

Examinership is where protection of the court is obtained against the Company’s creditors to assist the restructuring and survival of a company. This is an option for an insolvent company that allows it to explore all plans for survival.

In most circumstances the creditor’s balances are reduced and they cannot enforce debt repayment during the courts protection, assets of the company are protected. Investment will also be sought. Crucially, directors retain control.

An obvious advantage of examinership for a company is the avoidance of numerous risks for the company, in particular:

• A receiver cannot be appointed by the company’s debenture holder while under the protection of the Court
• A petition cannot be presented to the High Court to have an official liquidator appointed
• No goods may be seized or claimed by any creditor through the Sheriff. No goods held under a lease or a hire purchase agreement may be repossessed by the leasing company and no goods the subject of retention of title can be repossessed without the consent of the Examiner
• No other proceedings may be commenced against the company without the consent of the Court
• Personal guarantees cannot be enforced during the examinership process. In certain circumstances, a personal guarantee may not be valid following the approval of the High Court of the Examiner’s proposals for a scheme of arrangement.

Who is an Examiner?

An Examiner is an individual, usually an Accountant, who is appointed to a company by the High Court and who assesses the affairs of the company that has been placed into examination and if possible, prepares a plan for the rescue of the company, its undertakings or substantial parts thereof.

But whilst it is usual that an examiner is a practising accountant there is no requirement that Examiners have any special qualifications. Though certain parties are disqualified from being appointed as an Examiner as follows:

• Companies
• Those who are connected with the company in question.
• Undischarged bankrupts
• Persons who are the subject of a disqualification order are precluded from acting as an Examiner to the company

The Examiner in this context should not be confused with the Office of the High Court Examiner as outlined in the Court compulsory liquidation.

Process of an Examination?

• Petition
• Hearing
• Confirmed
• Interim Report by Examiner
• Investment
• Cessation of Court protection
  This arises on the coming into effect of a compromise of debt or scheme of arrangement. The appointment of the examiner will terminate on the date of such a cessation.

When is Examination appropriate?

In general Examination is suitable if the company:

• Has a viable business
• Has a reasonable prospect of survival after the examination has ended
• A scheme of arrangement can be formulated for the approval by the company’s members, creditors and the High Court.

 The main factors that determine whether an Examination is suitable for a company include:

• If the company has a trading business
• If the circumstances that gave rise to the insolvency can be reversed or were a once off (i.e. a large bad debt)
• If the cash flow for the examination period is positive i.e. the company will trade profitably during the examination process and will not worsen its financial position and that of its creditors.
• If the company has investors who are willing to invest in the company.
• If the company has significant amount of trade creditors and/or tax liabilities.
• If the company has the support of its secured bankers and has the ability to pay bank debts.
• If the company has the cash to pay the petition costs.
• If the company has the support of any critical creditors, whose refusal to support the examination would result in the collapse of the company.

An examination is not suitable when for a company when:

• The company is not trading.
• The company has no cash flow.
• The company does not have a realistic chance of obtaining an Investor.
• A period under the protection of the court is unlikely to address the reasons for the company’s insolvency
• The affairs of the company are such that a restructuring is not feasible.
• The company has poor financial controls or management.
• The company does not have support from its critical creditors.
• The company’s bankers/financers are fundamentally opposed to the appointment of an Examiner.
• The company –if involved in construction – has a poor history of compliance with the Revenue Commissioners and is unlikely to obtain an up-to-date C2 Payments Card.

Circumstances where an Examination will certainly be refused

The High Court will not hear a petition to appoint an Examiner which is presented by a creditor until such security for costs has been given, and until a prima facie case for the protection of the High Court has been established to its satisfaction.

The High Court will not hear a petition if a Receiver has been appointed over the company for a continuous period of 72 hours prior to the presentation of the petition.

Who can petition to place a company under the protection of the Court?

1. The Company

2. The Directors of the company

3. Creditors

4. Members of the company holding not less than one tenth of such of the paid up capital of the company as carries at that date the right of voting at general meetings of the company.

Examiner Duties

• Formulate rescue proposals for the company, which s known as a Compromise of Debt or a ‘Scheme of Arrangement’. Within 35 days of the appointment the Examiner is obliged to report to the High Court as to whether a scheme of arrangement can be formulated. Where the Examiner is unable to formulate a scheme of arrangement he will apply for the direction of the High Court which will usually result in the winding up of the company.

• Specify the various classes of members and creditors, ensuring that the claims and/or interests of each particular class are treated equally unless the holder of a particular class agrees to less favourable treatment.
• Provide for the implementation of the scheme of arrangement.
• Specify any necessary changes to the management of the company or the Memorandum or Articles of Association of the company and include other matters as the Examiner deems appropriate.
• Include a statement of the assets and liabilities of the company.
• Describe the estimated financial outcome of a winding of the company for each class of members and creditors.
• To carry out other duties as order by the Court.
• The proposals must be put to the meetings of each class of members and creditors. The proposals are deemed to have been accepted by a class of creditors when a majority in number and in value of the claims represented at the meeting have voted in favour of the proposals.
• The proposals are the brought before the High Court which decides whether to accept or reject the respective proposals.