Examinership
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, 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.
Experienced
We have been involved in over 300 Examinership cases to date
90% Success Rate
We have a success rate of over 90% of all the cases undertaken
Retail Experience
We are specialists in Examinerships for retail businesses, but we work with clients in any sector
Focus On Value
There is no requirement for upfront Examinership fees
For a company in financial difficulty, examinership provides:
- Time
- Protection from creditors
- A framework to agree a compromise with creditors
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.
Why Examinership?
Why Examinership?
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 its 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.
How is an Examiner appointed?
How is an Examiner appointed?
Candidates for examinership?
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.
Statutory Provisions
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.
The statutory requirements can be summarised as follows:
- 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.
Commercial Considerations
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:
- Is the company likely to survive in whole or in part as a going concern, or is the company ‘terminally insolvent’?
- What are the assets of the company?
- What are the liabilities of the company and how are these liabilities secured?
- Are the assets of the company easily sold?
- Are the assets of the company sufficiently large to justify the costs of examinership?
- What is the staffing position of the company (number of staff and length of service) and what will their reaction be to the likely changes following examinership?
- What is the regulatory position of the company including licenses, environmental matters, key customer audits, planning permissions, etc.
What is the level of outside investment required to formulate a scheme of arrangement to be put to the creditors?
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.
What is the role of the Examiner?
What is the role of the Examiner?
The Protection Period
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 its 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 its 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.
How does a Company successfully emerge from Examinership?
How does a Company successfully emerge from Examinership?
The Formulation of a Scheme of Arrangement
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.
“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.”
Examinership Client
- 73 jobs saved
“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.”
Examinership Client
Examinership Client Case Studies
Case Study 1: Hotel
This Company was involved in the operation of hotel, night club and bar in County Wicklow. The following difficulties for the company became very apparent: Difficulties in the hotel sector as a whole, including over supply of hotel rooms as a result of tax incentives in the sector; management issues; and significant contingent liabilities as a result of third party claims against the Company.
Case Study 2: Mechanical Engineering Contractor
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: Cash flow problems; threat of winding up orders from trade creditors insurers; delay in securing investment; loss of key management
Case Study 3: Multi Unit Retailer
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.
Case Study 3: Construction Company
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.
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With over 300 colleagues and 4 offices in Dublin, Enniscorthy and Waterford, Azets is part of a team of 9,000 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.