Examinership Lite

One of the tools available to businesses is that of the Examinership process. In 2014 the legislation was amended to introduce Examinership ‘Lite’. This meant that those companies in trouble could apply to the Circuit court rather than the High Court for protection from their creditors.

This was to assist with one of the barriers to examinership which was the cost of the proceedings.

The key to a successful examinership is early intervention before the situation has escalated to receivers being appointed by creditors and legal proceedings being instigated or revenue interventions. The examinerships that succeed are the ones that are carefully planned in advance of entering the protected period of 70 days, which is very short considering all that needs to be done during this 70-day period.

The company can and must continue to trade during this period and it must be able to prove that it is viable into the future following the restructure

To qualify for Examinership ‘Lite’ a company must meet 2 of 3 criteria

1. Turnover € 8.8m or under,

2. Net Reserves € 4.4m or under,

3. No more than 50 employees.

When is examination appropriate?

In general, an examinership is suitable if the company:

• Has a viable business,
• The business can continue to trade during the examinership protective period,
• Has a reasonable prospect of survival after the examination has ended,
• A scheme of arrangement can be formulated for approval by the company members, creditors and the court.

What is Examinership

The process is managed by a third party known as the examiner, who is usually a practising accountant. Entering Examinership is the only way in Irish law outside of receivership or liquidation that a company can hand back an onerous leasehold interest to a landlord.

The landlord is often the biggest single creditor for SMEs and there remains the legacy problems of "upwards only" leases, with rent that is no longer reflective of the marketplace. This has been a main reason for businesses pursuing Examinership to restructure their businesses in the recent past but due to affordability issues it was not utilised by SMEs to any great level.

The concept of Examinership was introduced to Ireland in 1990 to provide insolvent companies with an opportunity to pursue other holistic options for survival as a going concern, as an alternative to a liquidation. The process allows for the coordination of negotiations through the examiner, with management, secured lenders, trade creditors, revenue and suppliers as well as staff.

The Rationale of Examinership

The Examinership process is a rescue attempt by the company, which requires some creditors to suffer loss or diminution of their legal rights for the arrangement to work in order that the company will survive as a going concern and continue to provide employment and contribute to the economy.

It is a powerful tool that hasn’t been overly used by companies in the past, but it will become more prevalent in the coming months as businesses re open and they need to find solutions to restructure and repair their balance sheets.

Appointing an Examiner

Any company seeking to restructure in Examinership must be able to prove that it has a reasonable prospect of survival.

This proof is presented to Court in the form of an independent accountant's report. This detailed report is required to contain specific information, as required by the Examinership legislation but will crucially contain an opinion that the company has a "reasonable prospect of survival" as a going concern if the Examinership is successful and, that creditors will fare better than in a liquidation of the company.

Who makes the Application?

Usually the directors or shareholders of a company will be the ones to petition the Circuit Court for protection and to have an examiner appointed.

Consideration for Examinership

When considering if Examinership is an appropriate solution the following key points need to be considered:

• Will the company survive as a going concern if it addresses its cost base, or is the company hopelessly insolvent?
• Are there non-core assets in the company that can be sold or further equity investment available to generate funds to agree a scheme of arrangement with creditors?
• Will jobs be saved if the company can agree a scheme of arrangement with creditors?
• As an examiner can immediately restore the company's tax clearance cert, will this assist the company to survive?

The Examiner's Role

The Examiner's role is not to run the company but to examine the company affairs and to prepare proposals for a scheme of arrangement for presentation to a meeting of the company's shareholders and creditors within 100 days of being appointed which will ultimately be presented to the Circuit Court or High Court for approval.

The Scheme of Arrangement as an Alternative to Liquidation

Each Examinership is conducted in order to propose a scheme of arrangement with the members and creditors of the company. The scheme will be an agreement between all stakeholders to enable the company to survive.

It is essential in proposing a scheme that creditors will see that they will get a better return in the Examinership than in a Liquidation scenario.

An examiner will classify creditors into different categories and formulate the proposed scheme having regard to the requirements of the separate classes of creditors and on the basis that all creditors in the respective classes are treated equally within that class. Different classes of creditors include:

• Secured creditors
• Preferential Creditors (typically Revenue)
• Landlords
• Unsecured Creditors

The examiner will need to obtain the support of at least one class of creditors (at a minimum) to accept the scheme before it can be brought before the Circuit Court for approval although the scheme has a better chance of Court approval if it has the support of the majority of creditors.

Once the scheme is finalised, it is then put to a vote at meetings of shareholders and creditors. After the meetings, the examiner must file a report with the Court on the outcome of the meetings. This report is required to advise the Court of the views of the various classes of the company's creditors.

As stated, the Court will be more disposed to approve a scheme that has the support among the majority of creditors and also assists in retaining the jobs of the company’s employees.

The scheme will also provide for the costs of the process.

Although the number of examinerships in recent years have remained disappointing low given that it remains the only major corporate restructuring mechanism available, the vast majority of companies that choose to enter examinership are able to successfully restructure their business.

If you have any concerns about your business, please contact us to discuss how we can help to restructure your business and assist in putting a financial plan in place.

Regards

Mark Ryan