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

In May 2020 Revenue issued guidance on the Debt Warehouse Scheme, where they confirmed support will be provided to both SME businesses (automatically) and larger businesses (on request) who experience cashflow and trading difficulties arising from the impacts of COVID-19. Revenue further defined an SME business as “a business with an annual turnover of less than €3 million who is not dealt with by either Revenue’s Large/Medium divisions.”

Businesses should be aware that Revenue are allowing a warehousing of VAT and PAYE liabilities for the period where trade is restricted and for two months after returning to normal trading. For most companies restricted trading will cease by 30 June, therefore the debt warehousing will cease for most by the end of August. If you are looking to extend the debt warehousing beyond 31 August it is essential you engage with Revenue.

The debt will be warehoused for 12 months after the cessation of the debt warehousing period. For most, the 12 months will cease on 31 August 2021. No interest will be charged on this debt if paid within the 12 months. If entering into an instalment arrangement after the 12-month period ends then a lower interest rate of 3% will be charged.

There are some important aspects of this deferral of tax debts:

• Companies will only qualify for this debt warehousing if they file their relevant tax returns on time. No filing of returns will mean companies will cease to qualify for this deferral of tax payments.

• Companies tax clearance certificates will not be affected.

• Refunds of other taxes will be paid out, irrespective of whether a business owes VAT/PAYE.

• The deferral applies automatically to SME businesses. However if your business is managed by either the Large Cases Division or the Medium Enterprises Division (even if an SME) then it does not apply automatically and the business must contact the Collector General to request a similar type of arrangement to that available to the SME sector. 

If you have any questions on the above please do not hesitate to contact us here in Quintas and we will be happy to help.

Regards

Dave O’Brien

The Office of the Director of Corporate Enforcement (ODCE) recently issued guidance on the effect the COVID-19 pandemic has on its insolvency-related functions. The guidance provides a statement on how the ODCE will assess the actions of company Directors, where the company has gone into a liquidation because of the COVID-19 pandemic.

The ODCE will continue to review each case on its merits but has stated that they will consider the following when companies do enter liquidation over the next few months:

• the adequacy of the Directors’ processes and procedures for monitoring the company’s financial position on an ongoing basis.
• whether, and if so at what point, Directors sought professional advice.
• the basis upon which the directors formed the view that the company would be able to trade out of its difficulties within a reasonable timeframe.
• the length of time that trading continued after it had become apparent, or should have been apparent, that the company was insolvent.
• the extent to which the company’s financial position continued to deteriorate, as well as the nature of any additional liabilities that accrued during the period which the Directors knew, or ought to have known, that the company was insolvent.
• In cases where there are material tax liabilities, the extent to which such liabilities arose and the extent to which the company availed of Revenue Commissioners requirements for deferred payments and warehousing liabilities.
• the steps taken to reduce costs and/or to restructure the business.

In the context of the subject matter of this statement, the ODCE notes the Revenue Commissioners’ stated position that a declaration made as part of an application for the COVID-19 Temporary Wage Subsidy Scheme is not a declaration of insolvency on the part of the company.

Generally, the ODCE do not consider Directors to have acted irresponsibility in situations where the company has become insolvent due to events largely outside their control.

As stated above it is expected by the ODCE that Directors will act in a responsible manner. Please contact us, if your company is having financial troubles and we can assist you in creating a financial plan to restructure your business.

Regards

Eddie O’Shea

Business Restart Grant Applications expire on the 31^st August 2020

Please ensure you that have applied to your local authority for the Business Restart Grant as the final deadline for this grant application is the 31^st August 2020.

The €250 million Restart Fund has been created nationally by the Minister for Business, Enterprise and Innovation.  The purpose is to help micro and small enterprises with the costs of reopening during Covid-19.  Companies can apply for a grant to their Local Council for an amount equivalent to no more than their 2019 rates bill and there will be a cap of €10,000. The grant can be used to pay ongoing fixed costs, for replenishing stock and for measures needed to ensure employee and customer safety.

Subject to the qualifying criteria below, any business that has a commercially rateable premises, or where rates are paid on your behalf and attributable to the business premises you occupy, can apply.  

Multiple chain stores, i.e. a business that is a non-financially independent branch of a group of chain stores which is owned and managed by a single entity, are not eligible.  Non-commercial organisations such as community and sporting premises (including charity shops and community and sporting premises with a bar) are not eligible.  Businesses that do not operate from commercially rateable premises (tradesmen, service providers, etc) are not eligible.  Premises that were vacant prior to the Covid-19 emergency are not eligible for the grant

To receive the grant, a business must:

• Have an existing rate account with the Local Council
• Have an annual turnover of less than €5 million and employ between 1 to 50 people
• Have closed, or incurred a projected 25% or more loss in turnover to the end of June 2020
• Commit to remain open or to reopen if it was closed
• Declare the intention to retaining employees that are on the Temporary Wage Subsidy Scheme and to re-employ staff on the COVID-19 Pandemic Unemployment Payment where applicable

Apply online for the Restart Grant for Cork based businesses by using the following links: 

Cork City Council - COVID 19 Business Restart Grant 

Cork County Council - COVID 19 Business Restart Grant 

Appeals relating to a decision to refuse an application need to be made in writing within 7 days of receipt of notification of the decision to the relevant local authority, whose decision on the appeal will be final. 

If we can be of assistance with this application or if you have any queries, please contact us.

Regards

Mark Ryan

Staff Announcement

Welcome to Lisa Higgins who was recently joined our Payroll Department at Quintas. We would also like to welcome Aileen Hegarty who joined us under our 2020 Graduate Program. Aileen would have previously worked in Quintas as part of our Work Placement programme in 2019.

New Arrivals

Congratulations to Eddie O'Shea and his wife Amy on the recent arrival of their baby Finn.

Congratulations to Jennifer Higgins and her husband Gordon on the recent arrival of their baby Hailey.

Quintas Sponsorship

Paul's son William O'Connell sporting the Ballyhooly GAA jersey. Hopefully it won't be long until the Ballyhooly team are back on the playing field.

Wage Subsidy Scheme Spot checks and Eligibility for July/August

The Revenue have been working hard on the wage subsidy scheme (“TWSS”). They are currently at version 16 of their FAQ’s – I think if you have to amend the frequently asked questions section of any guidance 16 times then it is a clear sign that the scheme was incredibly over complicated to begin with. Could the government just have paid qualifying workers their gross salary with a max limit of €350 per employee? This could have gone to their employers who would have just paid them as normal and paid the tax as normal.

Anyway, there is no going back now. The prevailing issue now is whether companies will continue to qualify for the scheme for July and August. We are getting mixed signals on this from Revenue. Recently an e-brief was published which said that the criteria has not changed to qualify for the scheme. I quote the following directly from the e-brief:

“The business must have suffered a significant negative economic impact as a result of the Covid-19 pandemic. The indicators of this are a minimum of a 25% reduction in turnover, customer orders or any other ‘reasonable basis’ for the three months to 30 June 2020, Quarter 2”.  

This means that on the face of it your turnover in July and August is immaterial to qualifying for the scheme.

However, the original rules made reference to having an inability to pay normal wages as a criteria to qualifying. Revenue indicated at the time that if turnover was down 25% and you suffered “significant negative consequences” resulting from the pandemic then you would qualify. The goal posts appear to have shifted for July and August. Revenue have indicated, through speaking with various businesses and through a Tax Institute webinar that they will now be assessing a business’s ability to pay in more detail when assessing whether the business can qualify for the scheme for July and August. They have not been clear on what this means. I’m taking it that if you have sufficient income to cover your normal costs (and any deferred costs) then potentially you will need to come off the scheme or at least decrease the subsidy amount that you are availing of.

Unfortunately, the advice cannot be black and white and so businesses will have to review the guidance themselves or with their advisors to determine whether they can continue to avail of the scheme.

TWSS – Revenue compliance/audit programme

Revenue have already sent out over 1,000 letters to business who have availed of the scheme. It seems a bit unfair that the letters are going out now, as companies are still in the midst of dealing with the pandemic and now, they have to deal with replying to a series of queries about the scheme from Revenue. On top of that the letters state that you have 5 working days to reply, “so that future payments of the TWSS are not delayed or stopped”. This is not type of pressure that businesses need right now. My view is that Revenue are timing these letters to effectively scare some businesses into ceasing with the scheme where those businesses only barely qualified for it in the first place.

The information requested is as follows (taken directly from the letters):

1. An outline of the nature of your business and principal activities.

2. A summary of the impact of the COVID-19 restrictions on the turnover of your business (this is the information that you would have considered in deciding that you were eligible for the scheme). Summary should include details such as: if business closed and date of closure; date disruption impacted business; details of the basis used to meet 25% reduction in turnover test i.e. 25% reduction in turnover, customer orders or another basis; number of employees retained/not retained on payroll and reason for non-retention; outline of adjustments in director’s salaries since start of year, if any.

3. Details of who runs your payroll – you or your agent/payroll provider.

4. Confirmation that payslips were issued to all employees and directors for the pay periods for which subsidy payments were received from Revenue, and that the payslips displayed the TWSS subsidy amount.

5. Copies of payslips for the employees / directors named below for (a) the last J9 payslip before          4 May 2020 (Transitional Phase) and (b) the most recent J9 payslip (Operational Phase).

If your business receives one of these letters it is important that they are given due attention as businesses do not want a situation where the TWSS is stopped, even temporarily. Also, a prompt response will reduce the possibility of an audit.

If you have any questions on the above, please do not hesitate to contact us here in Quintas and we will be happy to help.

Regards

Dave O’Brien

The Banking & Payments Federation Ireland announced on 18^th June 2020 that Irish banks have extended the deadline date for new payment break applications to 30^th September 2020 (previously the scheme was extended to 30^th June 2020).

What is the scheme?

The payment break gives you a break from repaying your mortgage or personal loan. Under the arrangement, the loan repayments or part of the loan repayments are postponed for an agreed period of time.

Can I still apply for a payment break?

Yes, you can still apply once you have been impacted by COVID-19 and feel you may have difficulty meeting repayments. It is important to note that your loan must not have been in arrears prior to March 2020.

Is there a cost?

While there are no upfront costs associated with the payment break, you will however be charged interest on any repayments that are not made over the course of the payment break. i.e. Unpaid loan interest will be accrued, which will result in your outstanding loan balance increasing (see options below).

What should I do if I can return to full repayments before the end of the payment break?

It is important that you return to making full repayments once you are able to do so, as this would make the loan less costly for you in the long term.

What are my options when the scheme stops?

At the end of the payment break, your monthly mortgage repayments will be recalculated to take into account the repayments that were put on hold or reduced and the interest charged during the payment break. There are two options that may be available when the payment break ends:

1. Increase your repayment amount over the existing loan term, or
2. Extend your loan term to account for the missed prepayments.

What should I do?

it is essential that you contact your advisor and lender as early as possible to be able to avail of a payment break. Please be aware, guidelines state that applications for a repayment break state that you must have applied in writing and have received approval from your bank on our before 30^th September 2020.

It is important to consider the following before your application:

1. You must be careful when answering the generic questions issued by all the regulated banks for this extension.
2. Your answers could lead to you been challenged by banks, as they may feel that your companies long term outlook might result in the company not been able to meet its banking covenants.

Please contact us today to find out more about the above and how we can help you and your business recover from the Covid-19 crisis.

Regards

Eddie O’Shea

The Office of the Director of Corporate Enforcement (ODCE) recently issued guidance on the effect the COVID-19 pandemic has on its insolvency-related functions. The guidance provides a statement on how the ODCE will assess the actions of company Directors, where the company has gone into a liquidation because of the COVID-19 pandemic.

The ODCE will continue to review each case on its merits but has stated that they will consider the following when companies do enter liquidation over the next few months:

• the adequacy of the Directors’ processes and procedures for monitoring the company’s financial position on an ongoing basis.
• whether, and if so at what point, Directors sought professional advice.
• the basis upon which the directors formed the view that the company would be able to trade out of its difficulties within a reasonable timeframe.
• the length of time that trading continued after it had become apparent, or should have been apparent, that the company was insolvent.
• the extent to which the company’s financial position continued to deteriorate, as well as the nature of any additional liabilities that accrued during the period which the Directors knew, or ought to have known, that the company was insolvent.
• In cases where there are material tax liabilities, the extent to which such liabilities arose and the extent to which the company availed of Revenue Commissioners requirements for deferred payments and warehousing liabilities.
• the steps taken to reduce costs and/or to restructure the business.

In the context of the subject matter of this statement, the ODCE notes the Revenue Commissioners’ stated position that a declaration made as part of an application for the COVID-19 Temporary Wage Subsidy Scheme is not a declaration of insolvency on the part of the company.

Generally, the ODCE do not consider Directors to have acted irresponsibility in situations where the company has become insolvent due to events largely outside their control.

As stated above it is expected by the ODCE that Directors will act in a responsible manner. Please contact us, if your company is having financial troubles and we can assist you in creating a financial plan to restructure your business.

Regards

Eddie O’Shea