Examinership is a process in Irish law whereby the protection of the Court is obtained to assist the survival of a company. It allows a company to restructure with the approval of the High Court.
To obtain the appointment of an examiner it is necessary to petition the High Court and persuade the court that there is a reasonable prospect of survival of the company and the whole or part of its undertaking if an examiner is appointed.
The examiner has a fixed period of 70 days (extensible to 100 days) in which to prepare a scheme of arrangement, which must be approved by at least one class of creditors of the company. If it can be shown that the scheme provides for the survival of the company and the whole or part of its undertaking and that it is not unfairly prejudicial to any creditor(s) of the company the court has discretion to approve the scheme.
In most schemes of arrangement an investor will invest in the company and part of the money invested will be used to pay a dividend to each class of creditors.
Overview The principal rationale underlying the concept of examinership is to allow a company that is experiencing financial difficulties a period of protection from creditor action during which a third party (the examiner) has an opportunity to examine the affairs of the company and, if there is a reasonable prospect of the survival of the company and all or part of its undertaking as a going concern, to formulate proposals for a scheme of arrangement to facilitate such a survival.
The law relating to examinerships has its origins in the Companies (Amendment) Act 1990Companies (Amendment) Act 1990 which was passed by the Oireachtas at a time when the Goodman Group of companies appeared to be in danger of going out of business . Subsequently, the Companies (Amendment) (No. 2) Act 1999Companies (Amendment) (No. 2) Act 1999 was passed to give legislative effect to the recommendations of the Company Law Review GroupCompany Law Review Group which had been set up in 1994 by the minister for enterprise and employment to review the law relating to examinerships. The 1999 Act became effective on 1 February 2000 and made very substantial and significant changes to the examinership regime .
Court procedures in relation to examinerships are set out in Order 75A of the Rules of the Superior Courts.Order 75A of the Rules of the Superior Courts as amended with effect from 20 April 2012 by
Appointment of an examiner An examiner is appointed to a company on foot of a petition brought before the High Court. The petition must be supported by an affidavit sworn by or on behalf of the petitioner. It must also be accompanied by a report prepared by an independent accountant.
Who can petition the court The petition can be brought by the company, its directors, its creditors, its shareholders or any combination of these.Companies (Amendment) Act 1990 Section 3
Petitions for the appointment of an examiner are usually brought by the company itself, its directors or its shareholders.
Where the petition is presented by the company itself, it would appear that an ordinary resolution of the members is sufficient. A copy of the resolution (if written) or an extract of the minutes of the meeting at which the decision to petition for the appointment of an examiner is made should be exhibited to the verifying affidavit.
Where the petition is presented by the directors, it is necessary to exhibit to the verifying affidavit evidence of a properly passed board resolution.
The petition must nominate an examiner and must be supported by evidence which is sufficient to demonstrate to the court that an examiner should be appointed.
Grounds for the appointment of an examiner The principal legal test for the appointment of an examiner is whether or not there is a reasonable prospect of the survival of the company and the whole or any part of its undertaking as a going concern.Companies (Amendment) Act 1990 Section 2(2)
Accordingly, not only must there be a reasonable prospect of the survival of the company, there must also be a reasonable prospect of the survival of the whole or any part of its undertaking as a going concern.
It is also necessary to demonstrate that the company is or is likely to be unable to pay its debts. A company is deemed to be unable to pay its debts if: it is unable to pay its debts as they fall due; the value of its assets is less than the amount of its liabilities taking into account both contingent and prospective liabilities; or where section 214(a) or (b) of the Companies Act 1963214(a) or (b) applies to the company.i.e. where a properly served demand for payment of a sum in excess of €1,267.74 remains unpaid or unsatisfied 21 days after service or where an attempt to execute a judgment obtained against the company has been returned unsatisfied
A company does not have to be insolvent at the time of the presentation of the petition; the court can take account of a future event which is likely to have an adverse effect on the company's ability to discharge its debts. However, an examiner cannot be appointed to a company which is already in liquidation.Section 2(1)(c) of the Companies (Amendment) Act 1990. The existence of a winding up petition does not, in itself, prevent the appointment of an examiner. Where a receiver stands appointed for a continuous period of three days or more, an examiner cannot be appointed.Section 3(6) of the 1990 Act The period of three days runs from the appointment of the receiver and it is not open to a petitioner to argue that the period has not started to run based on an alleged infirmity in the appointment.In the Matter of Diorama Limited and in the matter of the Companies (Amendment) Act 1990, ex-tempore ruling of Finlay Geoghegan J., High Court, 20 July 2012.
Where an examiner is appointed to a company, the court may also appoint him as examiner of related companies and in a group situation this often arises though each group company should meet the test of having a reasonable prospect of survival of all or part of its enterprise.Section 4A of the Companies (Amendment) Act 1990 as inserted by Section 13 of the Companies (Amendment) No. 2 Act 1999
The petition The petitioner has a duty of utmost good faith, so all relevant information should be made available to the court. Failure to disclose any material issue relevant to the application may, depending on the circumstances, result in the application being dismissed.
The petition should contain a full history and background to the company, together with an overview of its initial trading history.
It should contain a comprehensive explanation of the reasons for the company's current financial difficulties and, where applicable, the measures the directors have taken to remedy the situation. The petition should conclude with an analysis of the reasons the petitioner believes the company and the whole or any part of its undertaking has a reasonable prospect of survival as a going concern and of the changes in conditions necessary to ensure its survival. These will also be reflected in the independent accountant's report.
Lastly, the petition must nominate an individual (who has given his prior consent to act) to be appointed as examiner and interim examiner, if appropriate. An affidavit of that individual's fitness to act as examiner must also be filed in court. Neither the petitioner's solicitor nor the solicitor who will act for the examiner should swear that affidavit.
The supporting affidavit The petition must be supported by an affidavit sworn by or on behalf of the petitioner. Practice varies and occasionally the affidavit will duplicate all of the information contained in the petition. Usually, this is unnecessary and the supporting affidavit can simply contain an averment that all information in the petition is correct and all relevant documentation in support of the information provided in the petition can be exhibited.
The independent accountant's report A petition seeking court protection must be accompanied by the report of an independent accountant. The independent accountant can be the company's auditor or a person qualified to be appointed as an examiner of the company. However, in practice, the person nominated as examiner tends to be someone other than the independent accountant.
The report must deal with a wide range of issues as mandated by the Companies (Amendment) Act 1990 (as amended). Essentially, it must put basic information before the court and give a view regarding whether or not proposals for a compromise or scheme of arrangement would offer a reasonable prospect of the survival of the company and all or part of its undertaking as a going concern.
The report should indicate the changes or conditions necessary for the survival of the company. While these conditions are not binding on the examiner, it is important that they are carefully considered before being included in the report. The reason for this is that if one or more of the conditions are solely dependent on a creditor's agreement, absent such agreement, the court may take the view that the company's prospects of survival are diminished or even eliminated.
The independent accountant should say whether, in his or her view, an attempt to continue the whole or any part of the undertaking would be more advantageous to the members and the creditors as whole than a winding up of the company would be.
The report should also contain cash-flow projections to demonstrate the company's ability to trade during the protection period. If the company's cash-flow is dependent on the support of one or more financial institutions (for example, by way of an invoice discounting agreement), it may be advisable to reach a preliminary agreement in advance of the presentation of the petition with the relevant institution that such funding will not be withdrawn. If the company has insufficient funds to continue trading during the protection period, an examiner will not be appointed.
With the increase in the number of unsuccessful examinerships, the court has, in certain cases, scrutinised the independent report in more detail. This is particularly so where there is an objection to the appointment of an examiner by one or more of the company's creditors.
Therefore, it is essential that all information in the report and, in particular, the conditions for survival and any projected cash-flows, are carefully considered and supported by accurate information and analysis.
The requirement for the independent report to accompany the petition can be dispensed with for a ten-day period where there are exceptional circumstances outside the control of the petitioner and which could not have been reasonably anticipated by the petitioner. The appointment of a receiver will not of itself be an exceptional circumstance.
As with the petitioner, where the independent accountant has failed to exercise utmost good faith, the court may decline to hear the petition.
Moreover, where it is apparent from the report of the independent accountant or otherwise that there is evidence of a substantial disappearance of property of the company or other serious irregularities in relation to the company's affairs the court is required to hold a hearing to consider the evidence. There are various procedural guidelines concerning this hearing. The court is empowered to make such orders as it sees fit after the hearing including, if appropriate, an order for the trial of any issue.
In practice the courts appear to be of the view that there is insufficient time in the course of an examinership to conduct a detailed investigation in relation to potential breaches of company law and where the possibility of such breaches arise in the confirmation hearing the court may simply decline to grant the petition.
Court protection