Examinership is a process whereby the protection of the Court is obtained to assist the survival of a company. Essentially it allows a company to restructure with the approval of the Courts. The usual outcome of the process is that creditor balances are reduced, the assets of the company are protected, investment is obtained and the directors remain in control of the business during the examination process which is supervised by an expert practising accountant called the Examiner.
Examinership is an option available to an insolvent company that enables it to explore all opportunities to provide for its survival. It is a management friendly process that is inclusive of customers, creditors, suppliers and staff.
At Azets Ireland, we are leaders in the Examinership sector. With a success rate of over 90%, we have been involved in over 300 Examinership cases to date. Our service focusses on value, which is why there are no upfront fees.
For a company in financial difficulty, examinership provides:
Examinership is often the last throw of the dice for companies in difficulty. It is not an appropriate relief for all companies and is not appropriate in many situations.
It is possible that due to its technical nature the procedure is not very popular, but it is a very useful weapon in the armoury of the company in financial difficulties; the director seeking to protect their personal interests, the creditor seeking to maximise his return or the investor seeking reduced risk in their investment.
In investment situations where procuring warranties and indemnities from directors is problematic, an examiner may provide the certainty required to facilitate investment.
Given the advantages to all parties connected to a company in financial difficulty that comes through examinership successfully, it is a matter that should be considered with advice from experienced professionals at the earliest possible time.
We have been involved in over 300 Examinership cases to date
We have a success rate of over 90% of all the cases undertaken
We are specialists in Examinerships for retail businesses, but we work with clients in any sector
There is no requirement for upfront Examinership fees
The appointment of an examiner to companies in difficulty became possible following the emergency enactment of the Companies Act 1990. The examinership provisions arose as a result of the imminent collapse of the Goodman Group of companies, with the attendant catastrophic effect this would have had on the Irish beef industry in particular, and the spin-off effects it would have had on the economy as a whole with its agricultural basis at that time.
The Irish legislation reflects the pro-active self-help provisions of U.S. Chapter 11 type protection afforded to companies. In this regard, it is distinguished from the rather more onerous administration provisions of U.K. company law.
The activities of a company under the protection of the Courts are subject to the scrutiny of a Judge.
The system is almost self-regulating because with few accountants and solicitors operating within the area, their integrity as officers of the Court is of paramount importance. Where the assigned Judge finds that the highest standards have not been met by the company or the examiner or that there has been any failure by petitioners for the protection of the court to disclose all material facts the Courts have been unequivocal about removing the company from the protection formerly afforded to it.
At the very outset, this analysis does not purport to set out an exhaustive statement of the law or practice in examinerships, insolvency or corporate recovery.
It is meant to highlight certain circumstances whereby the owners and management of companies should consider the appointment of an examiner as potentially a positive step for both the company and it’s creditors, following a period of difficult trading conditions.
In the very short term, the appointment of an examiner to a company provides breathing space for the company, where normal corporate recovery measures are not available. The immediate advantage is the protection of the Court for the company against its creditors thereby enabling it to continue to trade and to attract investment on more favourable terms than would be the case where the threat of the immediate demise of the company is the only alternative.
In the medium to long term, the examinership process facilitates the company’s restructuring by making provision for investment and the sanction of the Courts to a scheme of arrangement with the creditors of the company.
There are two criteria for determining whether a company is a candidate for examinership; the first being satisfying the tests set out in the Companies Acts, the second being commercial considerations.
At the outset, the company must be insolvent and unable to pay its debts in order to have an examiner appointed. It must also be able to demonstrate that it has a reasonable prospect of survival. In addition, no examiner can be appointed to a company if an official liquidator has been appointed, or where a receiver has been acting for a period longer than three days.
1. The company commissions an independent expert’s report, who is typically an accountant. This report must contain certain specific information; most importantly that the company has a ‘reasonable prospect of survival’ as a going concern provided the examinership is successful, and that the likely result of the process would be more advantageous to the creditors than a winding up.
Further expansion on this crucial ‘reasonable prospect of survival’ point is required from the independent expert. Normally their report will point out that the company must secure investment sufficient to facilitate a compromise with its creditors, or scheme of arrangement, to be capable of survival.
2. The independent expert must confirm that there is no deficiency in the finances of the company that is not satisfactorily accounted for and that the company has sufficient funds to trade throughout the period of protection.
3. The independent accountant must supply the Court with the necessary cash flow projections and statements of affairs to vouch the conclusions drawn in his report.
Normally the directors or shareholders of a company petition the Courts to have an examiner appointed. However, creditors of the company, both actual and contingent (including the company’s employees) may also do so. In practice, it is rare for creditors of the company to have enough information about the affairs of the company to successfully petition to have an examiner appointed.
Whether the company is likely to attract investment is the key factor having regard to the examinership option. Among some of the questions that should be considered to determine whether the company is likely to attract investment and is a candidate for examinership are as follows:
The process to petition to have an examiner appointed is a rigorous one and care must be taken to ensure that all of the statutory tests are met. In addition, it can be a costly exercise and the company must be prepared to commit resources to discharge the costs associated with it.
The protection of the Court is offered for a period of 70 days, which can be extended by application to the Court to 100 days and further in exceptional circumstances. Typically, the examiner assumes his role at a time of crisis and of great uncertainty for the company, its creditors and employees.
The statutory duty of the examiner is set out in the Companies Acts. It is to conduct an examination of the company’s affairs with a view to formulating proposals for a scheme of arrangement, for presentation to meetings of the company’s shareholders and creditors, for the ultimate approval of the Court.
Although independent of the directors, in practice however, a significant amount of the examiner’s time will be dedicated to working with the directors of the company to restore confidence in the company and it’s trade where this has been lost.
To enable a company to trade in the protection period the examiner must successfully manage an inclusive process involving the company’s key customers, suppliers, management and staff. The process is inclusive of all aspects of the company’s business and is ‘management friendly’ and in that regard, must be distinguished from the unilateral nature of receivership and liquidation.
The examiner will also immediately communicate with all creditors, customers and staff to explain the process and it’s effect on the company’s ongoing operations.
Certain creditors and staff will often react badly to the news of an examiner’s appointment. It is common for disgruntled creditors with claims for retention of title to move to repossess their property. The company resists these claims with the protection afforded by the Court, thus forming a sound platform for the examiner to sell assets and/or attract investment to provide for the survival of the company.
A key power of the examiner is to ‘certify’ ongoing expenses of suppliers, with the effect that should these suppliers continue to supply the company on credit during the protection period, their post-petition certified accounts will enjoy priority over all other creditors except a fixed charge holder, should the examinership process prove unsuccessful and the company be wound up.
The examiner must carefully monitor the cash flow of the company throughout the protection period to ensure the company trades in accordance with the projections furnished to the Court at the petition stage.
It is important to note that although the examiner has a right to access all books and records of the company and a right to attend all board meetings, the examiner does not usually usurp the executive function of the board of directors. For example, it is unusual for the examiner to become a signatory on the company’s bank account.
For the Scheme of Arrangement (“the Scheme”) to be successful the examiner must persuade at least one class of creditors to accept the Scheme before it can be brought before the Courts for approval.
In addition, he must ensure that all creditors within a class are treated the same way. The formulation of the scheme will usually cause some degree of discontent in at least one of the classes of creditors identified by the examiner.
The first task of the examiner is to divide the body of creditors into different classes. The formulation of the Scheme is the examiner’s attempt to share out a limited fund usually following some form of investment, between competing claims of different classes of creditors.
The typical Scheme will involve a secured creditor receiving all the funds owing to them, but sometimes by way of instalments and at times will involve some writing off of interest. The preferential creditors will usually receive a substantial dividend on foot of their liabilities whereas the unsecured creditors will generally receive much less.
The key to having the examiner’s proposals for a Scheme approved by the creditors is to formulate and present the Scheme in such a way that the creditors will secure a more advantageous outcome for themselves by endorsing the examiners proposals, than would be the case should the company be wound up.
A central part of the process is for the examiner to predict the likely attitude of the different classes of creditors to his proposals and formulate the Scheme accordingly. It is often the case that those creditors who vote against the examiner’s proposals feel that they have been unfairly prejudiced by the Scheme and that they would be in a more favourable position if the company went into liquidation.
Following the formulation of the Scheme it must be put to the vote of both a meeting of shareholders and creditors. Once the shareholders and creditors meetings have considered and voted on the Scheme the examiner must revert to the Court with a report on the outcome of the meetings and any modifications of the proposals adopted at the meetings.
This report is designed to indicate to the Court the views of the various classes of the company’s creditors. Obviously the Court will be inclined to approve a Scheme where it enjoys considerable support.
An examiner is permitted to formulate only those proposals which make it likely that the company will survive as a going concern, in whole or in part.
The S.C.A.R.P. (Small Company Administration Rescue Process) is a newly proposed corporate rescue mechanism which has been recommended by the Company Law Review Group in an October 2020 report as a restructuring framework focusing for micro and small companies. The primary objective of the proposed process is in line with Examinership – to save enterprise and any jobs provided by it. The current COVID-19 crisis has exacerbated the need for restructuring options for small and micro businesses with less red tape and lower costs.
The process has undergone a public consultation process which concluded on 5 March 2021, with the goal of finalising the legislation before the summer recess. Although the legislation is still to be constructed, the key elements are:
We have a number of qualified and registered insolvency practitioners with extensive insolvency experience in a wide range of industries particularly in debt restructuring and Examinership cases. We can assist by:
Please contact us for a free consultation to see how we can help you and your business going forward.
We are absolutely delighted with the outcome and are most appreciative of the efforts of you Neil Hughes, your team and your firm, specifically highlighting Conor Noone, who lead the project brilliantly and was most patient in bringing us up to speed on how the process works.
Much appreciation to you Neil Hughes and your team, from our initial contact with your organisation we experienced professionalism, positivity, pragmatism and patience. It’s been a life changing experience and we are just grateful you answered that call.
A reputable building contractor with a history of successfully working on large-scale building projects for over 30 years was engaged on six projects at the time Court protection was sought, a number of which related to the provision of social housing units.
1. Low gross profit margin in a very competitive market
2. Disputed claim on a project
3. Losses on investment in development lands
4. Unsustainable level of secured debt
The key risk for the company when entering the examinership process was the cancellation of contracts by clients as a result of the application for Court protection. Work had already ceased on a number of the sites due to the uncertainty surrounding the company’s future. However, the appointed Examiner, Mr Neil Hughes, was successful in negotiating with the company’s clients to ensure the continued operation of all viable contracts which the company was engaged on. This was subject to securing investment and the approval of a scheme of arrangement by the High Court. By eliminating onerous and loss-making contracts, the company was better positioned to focus on existing profitable contracts while also actively seeking to secure further work.
The examiner was successful in obtaining new investment and formulating a scheme of arrangement which was approved by the High Court, resulting in 24 jobs being saved while also agreeing a settlement in relation to the secured debt. This ensured the company returned to work on viable ongoing projects which is now allowing for the completion of much-needed social housing units.
This retailer operated from seven shopping centre units and traded profitably for many years before becoming loss making following the onset of recession.
The critical issue faced by the company was being tied into long term upwards only onerous leases at far above market terms. All other variable costs of the business were successfully reduced in line with turnover by the directors but the company was unable to reduce its main overhead; rent.
The company entered Examinership and the weakest trading store was immediately closed. Negotiations took place with other landlords using the framework of the Examinership and reductions of between 50 – 80% were achieved. The reductions were sufficient of themselves to turn around the company’s fortunes and render the company profitable.
A cash business, the company operated at a surplus during the protection period and utilised that surplus to fund a scheme of arrangement for all creditors. The company emerged debt free following the 100 day process with six stores still trading and 25 jobs intact.
This group of companies consisted of two trading companies and two holding companies. The trade of the companies was a mechanical engineering company and the installation of pre-insulated and pre-pack panels of ducting. The two other companies in the group acted as shareholder for the group and with the other holding intellectual property rights for its products.
The companies traded profitably for a number of years up until 2016 when it started to experience difficulties. As with any contracting company the loss on specific contracts precipitated the companies’ insolvency. Other issues faced by the company were:
The key risk for the companies when entering the examinership process was the loss or cancellation of contracts as a result of seeking the protection of the Court. However, the appointed Examiner, Mr Neil Hughes, was successful in negotiating with the companies’ clients to ensure the continued operation of all contracts the companies were engaged on with the exception of one. This contract was onerous and loss making and as a result of the scaling back of this contract during the examinership the companies were able to focus their resources on more profitable contracts to ensure the survival of the companies.
The examiner was successful in obtaining new investment and formulating a scheme of arrangement which resulted in the saving of over 70 jobs in the West of Ireland.
This Company was involved in the operation of hotel, night club and bar in County Wicklow. The Company’s business commenced in 1984 and the hotel traded profitably for a number of years.
However, the following difficulties for the company became very apparent:
The company became insolvent and entered Examinership in. Neil Hughes Examiner at Baker Tilly was appointed examiner to the company.
Over the course of the 100 day protection process, new investment was secured for the company from the existing directors. The Company reduced its costs, secured a tax clearance certificate and returned to profitability.
The company emerged from Examinership after reaching agreement with its creditors to pay them a 10% dividend on their debts. The Revenue Commissioners were paid 20% in full and final settlement of arrears.
The scheme was approved by the High Court and the company exited the process with 45 jobs intact and all historic creditors fully discharged through the scheme of arrangement.
With 100 colleagues and 2 offices in Dublin and Enniscorthy, Azets Ireland is part of a team of 7,500 talented, smart people across our international office network. Offering a personal, local approach to supporting Irish businesses, if you’re looking for peace of mind, expert advice and more time, we’re ready to help.
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