Petition for Examinership
A petition for examinership may be made by the company itself, its directors, any creditor or least one-tenth in value of its shareholders. The Central Bank only, may petition for examinership in the case of an insurer, a bank and a range of other financial services sectors, intermediaries and service providers.
The petition is presented to the Central Office of the High Court, which issues it. A one-sided application is then made to the court. It may adjourn the proceedings pending service of the notice of the proceedings on affected parties.
The petition must be supported by a grounding affidavit. The petitioner must act in good faith. Any failure in this regard is likely to lead to the immediate dismissal of the petition.
The petition is based in the company’s insolvency. A company may be insolvent where it is unable to pay its debts as they fall due or where its liabilities are greater than its assets, including contingent liabilities. A company is deemed insolvent if it does not comply with a “statutory demand” notice, which requires the payment of a debt of at least €10,000 within 21 days.
It is possible to make an application for examinership in respect of connected companies. Many businesses operate as a group. Protection may be offered where it is likely to facilitate the survival of the company or a related company or both. There must be a reasonable prospect of the survival of the related company and the whole or part of its undertaking as a going concern. A related company can include a company registered outside Ireland.
The court may make an interim order appointing an examiner, immediately after presentation of the petition. The 2014 Act gives the court express power to appoint an interim examiner.
An interim protection order may be made in an exceptional case, where the independent accountant’s report is not available. Tthe court must be satisfied that because of exceptional circumstances outside of the control of the petitioner, an independent accountant’s report is not available and the petitioner could not reasonably have anticipated the circumstances.
A temporary protection for up to 10 days may be allowed, in order to allow formulation of a report. Where an interim examiner is appointed upon the petition of a third party, the directors are obliged to co-operate in the preparation of the accountant’s report. If they do not do so, the court may require them to do so.
If no accountant’s report is forthcoming within ten days, the provisional protection ceases.
Hearing and Appointment I
The petitioner proposes the examiner for appointment. The petitioner must meet the statutory grounds for appointment.The company must be shown to be insolvent.
On the application for appointment, every creditor affected is entitled to be heard. If winding up has commenced or a receiver has been appointed for three days, an examinership will not be permitted.
It is a condition for the appointment of an examiner, that the company is unable to pay its debts or is unlikely to do so and there is a reasonable prospect of the survival of the company, and the whole or part of its undertaking is a going concern. The basis of independent survival must be set out in the accountant’s report.
Hearing and Appointment II
The dismissal of a petition to appoint an examiner may be the subject of an appeal to the Court of Appeal/ Supreme Court. The High Court may grant a stay on such order, as it sees fit. The Court of Appeal / Supreme Court may grant a petition which has been refused at High Court level. In practice, the courts seek to prevent court protection continuing for a protracted period, to the detriment of creditors.
A second petition may in principle be prepared, but this is permissible in exceptional circumstances only. Where it is based on substantially similar material and evidence, it is inappropriate, and it may constitute an abuse of process.
On appointment, the examiner/ petitioner must deliver a copy of the appointment to the Companies Registration Office within three days. He must publish notice of his appointment in two daily newspapers within three days of his appointment. Particular of the appointment must be published in the Companies Registration Office Gazette.
Related Company I
The examiner may also be appointed in respect of a related company. A related company is defined to include group companies and a wider class of associates. Related companies are sufficiently widely defined to include foreign companies.
The court may appoint an examiner to related companies, where it is of the opinion that the order will facilitate the survival of the company or the related company or both and the whole of part of its undertaking as a going concern. There must be a reasonable prospect of survival in respect of each related company.
There does not appear to be separate requirements that the related companies be insolvent. Commonly, inter-group guarantees will make the whole group contingently liable for the debts of one or more group companies.
Related Company II
Where an examiner is appointed to a related company, it has the same power in respect of each. The examiner should prepare separate schemes of arrangements for each company, rather than a single group scheme unless the court otherwise directs.
An examiner may not formulate proposals which would have the effect of impairing the interest of creditors of a company in a manner which favours the interests of creditors or members of a related company to which the examiner has also been appointed.
The schemes, in the case of related companies, may be interdependent and require the ultimate approval of each, so that each approval is conditional on approval of all others.
Creditors may vote in respect of each company of which they are creditors.
The independent accountant’s report must accompany the petition. It must inform the court whether the independent accountant’s investigation indicates that the company has a viable future and what steps, including possible arrangements with its creditors, are necessary to that end.
The report must include certain matters required by the legislation including
- names and addresses of officers including shadow directors;
- names of companies in which they are also directors;
- a statement of affairs of the company, giving details of assets, liabilities to the most recent date including prospective and contingent liabilities; and
- details of creditors and their security.
The report must set out the independent accountant’s opinion of whether the company as a whole or part of its undertaking, would have a reasonable prospect of survival as a going concern. It must set out the conditions essential to ensure survival. It must set out whether the formulation, acceptance, and confirmation of proposals or a compromise, would offer a reasonable prospect of survival of the whole or part of the undertaking, as a going concern.
Report Matters I
The report must contain proposals as to the course which the independent accountant recommends should be taken in relation to the company, including if appropriate draft proposals for a compromise or scheme of arrangement.
It must set out details of the required funding to enable the company to continue to trade during the period of protection.The report must set out the independent accountant’s opinion as to whether an attempt to continue the whole or part of the undertaking would be likely to be more advantageous to the members as a whole and the creditors as a whole, than winding up.
It must set out recommendations as to whether liabilities incurred prior to the petition, should be paid. It must set out the independent accountant’s opinion as to whether the work of the examiner would be assisted by the direction of the court in relation to a creditors’ committee. It must set out such other matters as he considers relevant.
Report Matters II
The report must identify whether, in the opinion of the independent accountant, there is any deficiency between the assets and liabilities which has not been satisfactorily accounted for, or whether there is evidence of disappearance of property that is not accounted for. It should set out whether facts disclosed would warrant further enquiries in relation to fraudulent or reckless trading.
The accountant’s opinion must be based on evidence. It must not be overly optimistic. The more firmly the opinions are based on evidence, the more likely that they will be accepted. The independent accountant has a duty to act with the utmost good faith in the preparation of his reports. Failures to disclose information are likely to undermine confidence in the proposals.
The report is supplied to the company and any interested person on an application to the independent accountant. The court may direct that the information be redacted, if its inclusion would be likely to prejudice the survival of the company as a whole or as to part of its undertaking, as a going concern.
Upon presentation of a petition for examinership, there is a moratorium on enforcement against the company for 70 days. This may be extended, usually to a maximum of a further 30 days and exceptionally for a further period until the court concludes consideration of the proposals. If there is a failure to disclose material facts or if the petitioner does not act in good faith, the protection may be refused.
The appointment of an examiner suspends enforcement against the company;
- no receivers may be appointed;
- no winding up proceedings may commence;
- no enforcement may take place against the company’s assets without court consent;
- no mortgage may be realised without examiner’s consent;
- no steps may be taken to repossess hired goods without consent,
- no proceedings shall be taken nor enforced against goods,
- no application for oppression may be made;
- no other proceedings may be commenced without leave of the Court;
- no proceedings against third parties liable to pay the company debts
Debts may not be paid by the company, with limited exceptions. One exception is where the independent accountant’s report recommends payment. Another is where the Court consents on the basis that the failure to pay would reduce the prospect of saving the company as a going concern.
Extent of Moratorium I
The moratorium is extensive. It includes assets subject to retention of title. It does not, however, extinguish any proprietary or contractual claim. The creditors of a company may not enforce. Purported enforcement will constitute contempt of court.
The various methods for enforcing judgements cannot be put into force without the examiner’s consent. See the sections on winding up as to when execution of judgement is completed. The restriction restrains actions to realise the security and does not necessarily prevent earlier steps in execution.
The moratorium applies to persons who have given guarantees and sureties on behalf of the company. It covers all persons who have any liability, present or contingent, to pay the debts of the company.A mortgage or security over property may not be enforced without examiner’s consent. The exercise by a landlord of his forfeit a lease by peaceable re-entry has been held in the United Kingdom, not to be a realisation.
Extent of Moratorium II
New litigation may not be commenced without the consent of the court. The court may grant consent, depending on the nature of the claim and circumstances. It may grant consent, but place a stay or temporary stop on the court proceedings going beyond a certain point. The moratorium applies to most proceedings including arbitration, administrative proceedings and certain prosecutions.
The examiner may take steps to prevent, or rectify the effects of any acts, omissions, course of conduct, decisions or contracts entered or being entered by or on behalf of the company with any person in relation to the income, assets, and liabilities of the company. Third parties who act in good faith in reliance on contracts and transactions are protected.
Where the examiner becomes aware of any actual or proposed act, omission, course of conduct, decision or contract, by or on behalf of the company to which he or she has been appointed, that company’s officers, employees, members or creditors, or any other person, in relation to the income, assets or liabilities of the company which, in the examiner’s opinion, is or is likely to be to the detriment of the company, or any interested party, he may take whatever steps are necessary, to halt, prevent or rectify the effects of such act, omission, course of conduct, decision or contract.
Receivership and Winding Up
If an examiner is appointed within three days of the appointment of a receiver, the court may order the receiver to step aside. Alternatively, it may restrict the receiver to certain assets and make other orders which require him to cooperate. The courts may relieve the receiver from the obligation to pay preferential creditors out of the proceeds of floating charged property if this would facilitate the survival of the company as a going concern
The court may not appoint an examiner to a company or to a related company, which has obligations to NAMA (or its subsidiaries) unless NAMA has been served with a copy of a petition and the court has heard NAMA in relation to the appointment of the examiner.
The appointment of the examiner does not displace a NAMA Act statutory receiver, nor affect his powers. A statutory receiver may enforce any security held by NAMA. It is not clear if a statutory receiver may be appointed once the petition for examination has been presented. The court may make orders, which might arguably displace or otherwise affect a statutory receiver. The examiner’s powers are limited in so far as the statutory receiver is concerned.
Examinership will not be permitted if the company has resolved to wind itself up or if a court winding up has been ordered. If there is a provisional liquidator and a petition for winding up is pending, the petition for examinership and petition for winding up may be heard together.
Upon protection by examinership, a winding up resolution may not be passed nor may a petition for winding up be presented. If the examinership does not succeed, winding up is the commonly the immediate consequence.
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 offered guarantor may accept the transfer of the vote subject to compliance with conditions.
If a creditor proposes to enforce by legal proceedings, the obligations of a third-party guarantor, then he shall, 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 the creditor to transfer to the guarantor, any rights he may have which arise from the debt, to vote in respect of 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 the 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 by legal proceedings in respect of the liability. 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.
The Companies Act 2014, provides for Circuit Court examinership, in the case of small companies, as defined. They are companies which in relation to the relevant financial year fulfils 2 or more of the following requirements:
- the amount of the turnover of the company does not exceed €8.8 million;
- the balance sheet total of the company does not exceed €4.4 million;
- the average number of employees of the company does not exceed 50.
Where the company’s debts do not exceed the Circuit Court threshold of jurisdiction, the matter may be remitted to the Circuit Court. The Circuit Court area in which the company has its registered office or principal place of business deals with the matters.
References and Sources
Companies Act 2014 S.508 -S.518 (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
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
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