Approving Proposals

Proposals

The principal function of the examiner is to examine the affairs of the company and to formulate proposals for its survival as a going concern.  The proposals must be formulated as soon as practicable.  This should generally be done within 30 days.  A report must be made to the Court within 35 days. At least three days’ notice must be given.

The proposals must specify

  • each class of members and creditors, whose interests are not impaired by the proposal;
  • each class of members and creditors whose interests are impaired;
  • provide for equal treatment of claims or interests of a class unless the creditor agrees to less favourable terms;
  • provide for the implementation of the proposal;
  • specify what changes should be made to management or direction of the company as are necessary to ensure survival.

It may Include other matters as appropriate including a statement of assets and liabilities of the company and the expected estimated financial outcome of the winding up for each class of members. The proposal must allow for the survival of the company. It is not directed towards liquidation.

The directors of the company are obliged to co-operate with the examiner. They may wish to put forward their own proposals. There may be conflicts of interest in this regard. Their statutory duty to co-operate remains.


Time Limits

An examiner shall

  • convene and preside at such meetings of members and creditors as he or she thinks proper; and
  • report on those proposals to the court, within 35 days after the date of his or her appointment or such longer period as the court may allow.

The examiner is required to formulate proposals for a compromise or scheme of arrangements as soon as practicable and to report to the court within 35 days or such longer period as may be allowed.  The court may allow extensions of time up to 70 days.

The protection period itself may be increased by a further 30 days and the period in which the report is required may be extended until then.  The maximum protection period is 100 days.If the report is presented the court may extend the period of protection, in order to enable it to decide if the proposal should be approved or not.

Where, on the application of the examiner, the court is satisfied that the examiner would be unable to report to the court within the period of 70 days above, but that he or she would be able to report to the court if that period were extended, the court may by order extend that period by not more than 30 days to enable him or her to do so.

The court may, of its own motion or on the application of the examiner, extend the period concerned by such period as the court considers necessary.


Proposed Changes

The proposal will invariably provide for the impairment of the interests of creditors and members.The proposal must deal with each class of creditor and shareholder, whose rights are impaired.

The impairment of an interest includes the reduction of rights, which would otherwise subsist.  The monetary claim of a creditor may be reduced.

What constitutes a class depends on the interests of the persons concerned.  There must be a common interest.

The proposal may specify changes in the management of the company. There must be equality within classes.  Proposals which cut down the property rights of a lessor without consent may not be approved. A statement of affairs must be prepared with the proposals.  It should set out what each creditor group would obtain in liquidation.

If the examiner forms the view that it is not possible to rescue the company as a going concern, the court must be notified immediately.  The examiner may apply to the court for the grant of directions in the matter. The court may, on such an application, give such directions or make such order as it deems fit, including if it considers it just and equitable to do so, an order for the winding up of the company.


Scheme of Arrangement I

Proposals for a compromise or scheme of arrangement in relation to a company shall

  • specify each class of members and creditors of the company;
  • specify any class of members and creditors whose interests or claims will not be impaired by the proposals;
  • specify any class of members and creditors whose interests or claims will be impaired by the proposals;
  • provide equal treatment for each claim or interest of a particular class unless the holder of a particular claim or interest agrees to less favourable treatment;
  • provide for the implementation of the proposals;

If the examiner considers it necessary or desirable to do so, in order to facilitate the survival of the company, and the whole or any part of its undertaking, as a going concern, he shall specify whatever changes should be made in relation to the management or direction of the company;


Schemes of Arrangement II

If the examiner considers it necessary or desirable to do so to facilitate such survival, he shall specify any changes he considers should be made in the constitution of the company, whether as regards the management or direction of the company or otherwise. It shall include such other matters as the examiner deems appropriate.

A statement of the assets and liabilities (including contingent and prospective liabilities) of the company as at the date of the proposals must be attached to each copy of the proposals to be submitted to meetings of members and creditors.

There shall also be attached to each such copy of the proposals, a description of the estimated financial outcome of a winding up of the company for each class of members and creditors. The court may direct that the proposals include whatever other provisions it deems fit.


Convening Meetings

The examiner must convene meetings of members and creditors in order to consider the proposals. There should be meetings of separate classes of shareholders and creditors as appropriate.  The examiner should summons every member and creditor apparent from the company’s books and records.

At least three days’ notice must be given of the meetings to consider the proposal for the compromise or arrangement. Members and creditors are entitled to attend the appropriate meeting in person or by proxy. Proxy forms must accompany the notice.

The notices must be accompanied by a statement explaining the effect of the compromise or arrangement.  It must specify the interests of company directors in whatsoever capacity and the effect of the compromise on their interests, insofar as it might be different to other persons.


Meetings I

Meetings and resolutions are valid notwithstanding the absence of notice.  The meeting may be held where most convenient.  There must be a quorum of at least two members or three creditors. The court may retrospectively confirm the meeting to have been valid.  Proxies must be lodged by 4 pm, the day before.

The examiner presides, chairs the meeting and conducts it.  Modifications to proposals may be put with the consent of the examiner only.  They examiner is to keep and sign minutes and a list of the persons present.The examiner may allow or disallow particular votes.

A modified proposal may be put but may be accepted only with the consent of the examiner.  A majority in number and value of creditors must vote in person or by proxy in favour of the proposal.


Meetings II

Proposals may be put to various classes of meetings, members, and creditors.  This should be divided in accordance with their common interest. Proposals may be accepted by the majority in number and value represented at the meetings.

Proposals are deemed to be accepted by a meeting of creditors or of a class of creditors when a majority in number representing a majority in value of the claims represented at that meeting have voted, either in person or by proxy, in favour of the resolution for the proposals. An abstention from voting or the failure to cast a vote, in respect of the proposals is not to be regarded as a casting by that person of a vote against the proposals.

A State authority (Minister of the Government, a local authority or the Revenue Commissioners) as a creditor of the company is entitled to accept proposals under this section notwithstanding that any claim of such authority as a creditor would be impaired under the proposals or any other enactment.


Guarantees

Where a creditor proposes to enforce a guarantee, the rights of the creditor to vote on the scheme associated with the debt must be offered to the guarantor. The guarantor who has been so offered may accept the transfer of the vote subject to conditions.

The creditor who wishes to enforce the obligations of a third-party guarantor, must, if 14 or more days notice is given of the meeting, at least 14 days before the date on which the meeting is to be held, or if less than 14 days’ notice has been given, not more than 48 hours after he has received notice of such meeting, serve a notice containing an offer by him to transfer to the guarantor, any rights he may have by reason of the debt, to vote on the proposals for compromise.

If the third-party guarantor accepts the offer, the offer shall, if the third party furnishes to the examiner a copy of the offer and informs the examiner of having accepted it, operate, without necessity for assignment or another instrument, to entitle the third person guarantor to exercise the rights of the creditor in relation to the debt.

If a creditor fails to make the offer above, then a creditor may not enforce the guarantee in respect of the liability by legal proceedings. This latter provision does not apply if the compromise or scheme of arrangement in relation to the company is not entered or does not take effect and in either of those cases, the creditor has obtained leave of the court to enforce the obligation.

If the examinership is successful and the scheme is sanctioned, an application may be made to the court to deem service good.


Examiner’s Report I

After the meetings, the examiner must report on the proposals and meetings to the court.  The report to the court must be made within 35 days of appointment or such longer period as may be allowed by the court.  The protection period may be extended beyond 70 days to a maximum of another 30 days.

The examiner’s report must report on the resolutions adopted by the meetings, the recommendations of the committee of creditors if any, a statement of assets and liabilities, a list of creditors, a list of officers, the examiner’s recommendations and such other matters as the court deems appropriate

An examiner’s report shall include:

  • the proposals placed before the required meetings;
  • any modification of those proposals adopted at any of those meetings;
  • the outcome of each of the required meetings;
  • the recommendation of the committee of creditors, if any;
  • a statement of the assets and liabilities (including contingent and prospective liabilities) of the company as at the date of his report;
  • a list of the creditors of the company, the amount owing to each such creditor, the nature and value of any security held by any such creditor, and the priority accorded under to any such creditor;
  • a list of the officers of the company;
  • the examiner’s recommendations;
  • such other matters as the examiner thinks appropriate or as the court directs.

Examiner’s Report II

The examiner shall supply a copy of his or her report to the company concerned and shall on the same day, cause the report to be delivered to the office of the court, and to any interested party on written application being made to him or her in that behalf. It shall also be furnished to the ODCE.

If the court, on application to it in that behalf, directs that that supply may be the subject of such omission, there may be omitted from any copy of the report supplied to an interested party such parts of it as are specified in the direction of the court. The court may, in particular, on such an application, direct that there may be omitted from such a supply of a copy of the report any information the inclusion of which in such a copy would be likely to prejudice the survival of the company or the whole or any part of its undertaking as a going concern.


References and Sources

Primary References

Companies Act 2014  S.539- S.541 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)   Ch.23  Courtney

Keane on Company Law 5th Ed. (2016) Ch. 37 Hutchinson

Other Irish Sources

Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury

Introduction to Irish Company Law    4th Ed. (2015) Callanan

Bloomsbury’s Guide to the Companies Act 2015      Courtney & Ors

Company Law in Ireland 2nd Ed. (2015) Thuillier

Pre-2014 Legislation Editions

Modern Irish Company Law   2nd Ed. (2001) Ellis

Cases & Materials Company Law 2nd Ed. (1998) Forde

Company Law 4th Ed. (2008)  Forde & Kennedy

Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy

Companies Acts 1963-2012   (2012)  MacCann & Courtney

Constitutional Rights of Companies   (2007)  O’Neill

Court Applications Under the Companies Act (2013) Samad

Shorter Guides

Company Law – Nutshell 3rd Ed. (2013) McConville

Questions & Answers on Company Law (2008)        McGrath, N & Murphy

Make That Grade Irish Company Law 5th Ed. (2015) Murphy

Company Law BELR Series (2015)   O’Mahony

UK Sources

Companies Act 2006 (UK) (Legilsation.gov.uk)

Statute books Blackstone’s statutes on company law (OUP)

Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington

Company Law in Context 2nd Ed. (2012) D Kershaw

Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam

Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington

 

UK Practitioners Services

Tolley’s Company Law Handbook

Gore Browne on Companies

Palmer’s Company Law


 

Companies Act

Report by examiner

534. (1) An examiner shall—

(a) as soon as practicable after he or she is appointed, formulate proposals for a compromise or scheme of arrangement in relation to the company concerned,

(b) without prejudice to any other provision of this Act, perform such other functions as the court may direct the examiner to perform.

(2) Notwithstanding any provision of Part 4 relating to notice of general meetings (but subject to notice of not less than 3 days in any case) the examiner shall—

(a) convene and preside at such meetings of members and creditors as he or she thinks proper for the purpose of section 540 , and

(b) in accordance with section 536 , report on those proposals to the court, within 35 days after the date of his or her appointment or such longer period as the court may allow.

(3) Where, on the application of the examiner, the court is satisfied that the examiner would be unable to report under subsection (2) to the court within the period of 70 days referred to in section 520 (2) but that he or she would be able to report under that subsection to the court if that period were extended, the court may by order extend that period by not more than 30 days to enable him or her to do so.

(4) Where the examiner has submitted a report under this section to the court and, but for this subsection, the period mentioned in section 520 (2) (and any extended period allowed under subsection (3)) would expire, the court may, of its own motion or on the application of the examiner, extend the period concerned by such period as the court considers necessary to enable it to take a decision under section 541 .

(5) The examiner shall supply a copy of his or her report under this section—

(a) to the company concerned on the same day as he or she causes the report to be delivered to the office of the court, and

(b) to any interested party on written application being made to him or her in that behalf.

(6) The examiner shall, as soon as may be after it is prepared, supply a copy of his or her report under this section to—

(a) if the company concerned is a company referred to in section 510 (2), (3) or (4) — the Central Bank, and

(b) irrespective of whether it constitutes any of the foregoing kinds of company — the Director of Corporate Enforcement.

(7) If the court, on application to it in that behalf, directs that that supply may be the subject of such omission, there may be omitted from any copy of the report supplied under subsection (5)(b) to an interested party such parts of it as are specified in the direction of the court.

(8) The court may, in particular, on such an application, direct that there may be omitted from such a supply of a copy of the report any information the inclusion of which in such a copy would be likely to prejudice the survival of the company or the whole or any part of its undertaking as a going concern.


Procedure where examiner unable to secure agreement or formulate proposals for compromise or scheme of arrangement

535. (1) If the examiner is not able to—

(a) enter into an agreement with the interested parties and any other persons concerned in the matter, or

(b) formulate proposals for a compromise or scheme of arrangement in relation to the company concerned,

the examiner may apply to the court for the grant of directions in the matter.

(2) The court may, on such an application, give such directions or make such order as it deems fit, including, if it considers it just and equitable to do so, an order for the winding up of the company.


Content of examiner’s report

536. An examiner’s report under section 534 shall include:

(a) the proposals placed before the required meetings;

(b) any modification of those proposals adopted at any of those meetings;

(c) the outcome of each of the required meetings;

(d) the recommendation of the committee of creditors, if any;

(e) a statement of the assets and liabilities (including contingent and prospective liabilities) of the company as at the date of his or her report;

(f) a list of the creditors of the company, the amount owing to each such creditor, the nature and value of any security held by any such creditor, and the priority accorded under sections 621 and 622 to any such creditor or any other statutory provision or rule of law;

(g) a list of the officers of the company;

(h) the examiner’s recommendations;

(i) such other matters as the examiner deems appropriate or the court directs.


Proposals for compromise or scheme of arrangement

539. (1) Proposals for a compromise or scheme of arrangement under this Part in relation to a company shall—

(a) specify each class of members and creditors of the company,

(b) specify any class of members and creditors whose interests or claims will not be impaired by the proposals,

(c) specify any class of members and creditors whose interests or claims will be impaired by the proposals,

(d) provide equal treatment for each claim or interest of a particular class unless the holder of a particular claim or interest agrees to less favourable treatment,

(e) provide for the implementation of the proposals,

(f) if the examiner considers it necessary or desirable to do so to facilitate the survival of the company, and the whole or any part of its undertaking, as a going concern, specify whatever changes should be made in relation to the management or direction of the company,

(g) if the examiner considers it necessary or desirable to do so to facilitate such survival, specify any changes he or she considers should be made in the constitution of the company, whether as regards the management or direction of the company or otherwise,

(h) include such other matters as the examiner deems appropriate.

(2) A statement of the assets and liabilities (including contingent and prospective liabilities) of the company as at the date of the proposals shall be attached to each copy of the proposals to be submitted to meetings of members and creditors under section 540 .

(3) There shall also be attached to each such copy of the proposals a description of the estimated financial outcome of a winding up of the company for each class of members and creditors.

(4) The court may direct that the proposals include whatever other provisions it deems fit.

(5) For the purposes of this section and sections 541 to 543 , a creditor’s claim against a company is impaired if the creditor receives less in payment of his or her claim than the full amount due in respect of the claim at the date of presentation of the petition for the appointment of the examiner.

(6) For the purposes of this section and sections 541 to 543 , the interest of a member of a company in the company is impaired if—

(a) the nominal value of his or her shareholding in the company is reduced, or

(b) where the member is entitled to a fixed dividend in respect of his or her shareholding in the company, the amount of that dividend is reduced, or

(c) the member is deprived of all or any part of the rights accruing to him or her by virtue of his or her shareholding in the company, or

(d) the percentage of his or her interest in the total issued share capital of the company is reduced, or

(e) the member is deprived of his or her shareholding in the company.


Consideration by members and creditors of proposals

540. (1) This section applies to a meeting of members or creditors or any class of members or creditors summoned to consider proposals for a compromise or scheme of arrangement in relation to a company to which an examiner has been appointed.

(2) Save where expressly provided otherwise in this section, this section shall not authorise, at such a meeting, anything to be done in relation to such proposals by any member or creditor.

(3) At a meeting to which this section applies a modification of the proposals may be put to the meeting but may only be accepted with the consent of the examiner.

(4) Proposals shall be deemed to have been accepted by a meeting of creditors or of a class of creditors when a majority in number representing a majority in value of the claims represented at that meeting have voted, either in person or by proxy, in favour of the resolution for the proposals.

(5) Nothing in subsection (4) shall, in the case of a creditor who abstains from voting, or otherwise fails to cast a vote, in respect of the proposals, be read as permitting such an abstention or failure to be regarded as a casting by that person of a vote against the proposals.

(6) Where a State authority is a creditor of the company, such authority shall be entitled to accept proposals under this section notwithstanding—

(a) that any claim of such authority as a creditor would be impaired under the proposals, or

(b) any other enactment.

(7) In subsection (6) “State authority” means the State, a Minister of the Government, a local authority or the Revenue Commissioners.

(8) Section 192 shall apply to any resolution to which subsection (4) relates which is passed at any adjourned meeting.

(9) Subsection (1)(a)(iii) and (b), and subsections (2) to (7), of section 452 shall apply to meetings under this section with the modifications specified in subsection (10) and any other necessary modifications.

(10) The modifications mentioned in subsection (9) are—

(a) the reference in paragraph (a)(iii) of section 452 (1) to the explanation required to be given under paragraph (a)(ii) of section 452 (1) in relation to the company’s directors shall be read as a reference to the explanation required to be given under subsection (11) of this section in relation to those directors, and

(b) the reference in section 452 (5) to a liquidator of the company shall be read as a reference to the examiner of the company.

(11) With every notice summoning a meeting to which this section applies which is sent to a creditor or member, there shall be sent also a statement explaining the effect of the compromise or scheme of arrangement and in particular stating any material interests of the directors of the company, whether as directors or as members or as creditors of the company or otherwise and the effect thereon of the compromise or arrangement, in so far as it is different from the effect on the like interest of other persons.

(12) Without prejudice to subsections (1) to (11), in the case of a company referred to in section 510 (3) or (4), the examiner shall also afford the Central Bank an opportunity to consider the proposals for a compromise or scheme of arrangement and, for this purpose, shall furnish to the Central Bank a statement containing the like information to that referred to in subsection (11).


Liability of third parties for debts of a company in examination

What this Chapter contains

545. This Chapter contains provisions—

(a) specifying the effect on the liability of a person (under a guarantee or otherwise) to another person in respect of a debt of a company in examination under this Part where a compromise or scheme of arrangement takes effect in relation to the latter;

(b) restricting the enforcement of that liability by that other person unless a certain procedure is employed; and

(c) providing for other matters relating to the foregoing (including a saver for cases falling within section 520 (4)(f) or where, by operation of any rule of law, a discharge or release of the first-mentioned person’s liability occurs).


Definitions (Chapter 4)

546. In this Chapter—

“creditor” shall be read in accordance with section 547 ;

“debt” shall be read in accordance with section 547 ;

“liability” shall be read in accordance with section 547 ;

“third person” shall be read in accordance with section 547 .


Circumstances in relation to which subsequent provisions of this Chapter have effect

547. Subject to section 548 (2), the subsequent sections of this Chapter have effect in relation to the following liability (the “liability”), namely the liability—

(a) of any person (the “third person”) whether under a guarantee or otherwise;

(b) in respect of a debt (the “debt”) of a company to which an examiner has been appointed that is owed to another (the “creditor”).


General rule: liability of third person not affected by compromise or scheme of arrangement

548. (1) Notwithstanding section 541 (7), the liability shall not be affected by the fact that the debt is the subject of a compromise or scheme of arrangement that has taken effect under section 542 (3), but this is subject to subsections (2) and (3).

(2) The third person and the creditor may provide in an agreement between them that the liability shall be so affected.

(3) Neither subsection (1) nor any of the subsequent provisions of this Chapter shall apply if the third person is a company to which an examiner has been appointed.


Enforcement by creditor of liability: restrictions in that regard unless certain procedure employed to the benefit of third person

549. (1) If the creditor proposes to enforce, by legal proceedings or otherwise, the obligation of the third person in respect of the liability, then he or she shall—

(a) if 14 days or more notice is given of such meeting, at least 14 days before the day on which the meeting concerned under section 540 to consider the proposals is held, or

(b) if less than 14 days’ notice is given of such meeting, not more than 48 hours after he or she has received notice of such meeting,

serve a notice on the third person containing the following offer.

(2) That offer is an offer in writing by the creditor to transfer to the third person (which the creditor is, by virtue of this section, empowered to do) any rights, so far as they relate to the debt, he or she may have under section 540 to vote in respect of proposals for a compromise or scheme of arrangement in relation to the company.

(3) If that offer is accepted by the third person, that offer shall, if the third person furnishes to the examiner at the meeting concerned, a copy of the offer and informs the examiner of his or her having accepted it, operate, without the necessity for any assignment or the execution of any other instrument, to entitle the third person to exercise the rights referred to in subsection (2).

(4) However neither that transfer nor any vote cast by the third person on foot of the transfer shall operate to prejudice the right of the creditor to object to the proposals under section 543 .

(5) If the creditor fails to make the offer referred to in subsection (1) in accordance with that subsection, then, subject to subsection (6), the creditor may not enforce by legal proceedings or otherwise the obligation of the third person in respect of the liability.

(6) Subsection (5) shall not apply if—

(a) a compromise or scheme of arrangement in relation to the company is not entered into or does not take effect under section 542 (3); and

(b) in either of those cases, the creditor has obtained the leave of the court to enforce the obligation of the third person in respect of the liability.


Payment by third person to creditor post period of protection — statutory subrogation in favour of third person in certain circumstances

550. (1) This section applies where the third person makes a payment to the creditor in respect of the liability after the period of protection in relation to the company concerned has expired.

(2) Where this section applies any amount that would, but for the foregoing payment, be payable to the creditor in respect of the debt under a compromise or scheme of arrangement that has taken effect under section 542

(3) in relation to the company shall become and be payable to the third person upon and subject to the same terms and conditions as the compromise or scheme of arrangement provided that it was to be payable to the creditor.


Saving for cases falling within section 520 (4)(f) and cases where third person discharged or released from liability

551. Nothing in this Chapter shall affect the operation of—

(a) section 520 (4)(f); or

(b) any rule of law whereby any act done by the creditor results in the third person being discharged or released from his or her obligation in respect of the liability.

The text in italics on this page is sourced from the Irish Statute Book and is re-published under the Licence for Re-Use of Public Sector Information made pursuant to Directive 2003/98/EC Directive 2013/37/EU of the European Parliament and of the Council on the re-use of public sector information transposed into Irish law by the European Communities (Re-Use of Public Sector Information) Regulations 2005 to  2015.