The 1990 Companies Act introduced the process of Examinership. Under the legislation, once an Examiner is appointed to a Company, the Company is under the protection of the High Court whilst the Examiner (i.e. the individual who “examines” the Company) formulates a Scheme of Arrangement with the Company’s creditors.

Is your Company suitable for Examinership?

In order for a company to be suitable for Examinership, the High Court has to be satisfied that the company, and the whole or any part of its undertaking, would have a reasonable prospect of survival. In essence, there must be a business that is either viable, or can be made viable.

The process itself begins with a Petition presented to the High Court. Who may present a Petition? A Petition for the appointment of an Examiner may be presented by:

The company; or The directors of the company; or A creditor, including a contingent or prospective creditor (including an employee), of the company; or Shareholders holding not less than one-tenth of shares carrying the power to vote at general meetings at the time of presentation of the Petition.

The Petition

As soon as a Petition for the appointment of an Examiner is presented in the Central Office of the High Court the Company is under Court protection.

The Petition nominates a person to be appointed Examiner. The Petition should be accompanied by the report of an independent accountant. In the absence of an independent accountant’s report, an application to court for protection is necessary. The Act provides that the independent accountant is somebody who is either the auditor of the company or a person who is qualified to be appointed as an Examiner of the company.

The report of the independent account must contain the following:

  1. The names and addresses of the officers of the company including shadow directors;
  2. The names of any other bodies corporate of which the directors of the company are directors;
  3. A Statement of Affairs of the company, which includes, where reasonably possible, the company’s assets and liabilities (including contingent and prospective liabilities) as at the latest possible date and the names and addresses of its creditors, the securities held by them and the dates when such securities were given by the company.
  4. His opinion that any deficiency between the assets and liabilities has been satisfactorily accounted for or, if not, whether there is evidence of a substantial disappearance of property that is not adequately accounted for;
  5. His opinion as to whether the company, and the whole or any part of its undertaking, would have a reasonable prospect of survival as a going concern and a statement of the conditions necessary to ensure such survival, whether as regards the internal management and controls of the company or otherwise;
  6. His opinion as to whether the formulation, acceptance and confirmation of proposals for a compromise or scheme of arrangement would offer a reasonable prospect of the survival of the company, and the whole or any part of its undertaking, as a going concern;
  7. His opinion as to whether an attempt to continue the whole or any part of the undertaking would be likely to be more advantageous to the members and creditors as a whole than a winding up of the company;
  8. Recommendations as to the course he thinks should be taken including, if warranted, draft proposals for a compromise or scheme of arrangement;
  9. His opinion as to whether further enquiries are warranted with a view to proceedings under sections 297 or 297A Companies Acts 1963;
  10. Details of any funding requirements for the protection period and the source of those funds;
  11. His recommendations as to which pre-Petition liabilities should be paid;
  12. His opinion as to whether the Examiner would be assisted by a direction of the court in relation to the role or membership of any creditors’ committee referred to in the Act;
  13. Anything else he considers relevant.

The report of the independent accountant is fundamental to the presentation of the Petition. Although not specifically specified in the Act, the independent accountant’s report should be signed off in the name of the reporting accountant, and not in the name of the accountant’s firm. If the company’s existing auditor is owed fees by the company, it could be argued that the auditor is not independent. In such circumstances it would be wise for the company to appoint an independent accountant.

In certain circumstances it may be advisable for a company to instruct an independent accountant to prepare an independent accountants report if it is apprehensive that its bank might appoint a Receiver.  If the bank does subsequently appoint a receiver, then the independent accountant should be able to rapidly update it.

The Petition itself must state the following:

  1. Name and address of the petitioner;
  2. Capacity of the petitioner;
  3. Date of incorporation of the company in question;
  4. Registered office of the company in question;
  5. Nominal and paid-up share capital of the company in question;
  6. Objects of the company in question;

The Petition must also show that:

  1. The company is or is likely to be unable to pay its debts;
  2. No resolution subsists for the winding up of the company;
  3. No order has been made for the winding up of the company.

The Petition must be verified by affidavit.

The Effect of Presenting a Petition

The Act provides that for a period of 70 days from the date of presentation of the Petition, which period may be extended by a further 30 days, the company shall be deemed to be under protection. In summary, creditors are prevented from taking any action against the company. For example, no winding up proceedings may be commenced, no receiver may be appointed or no judgment may be enforced.

Notification of Appointment

The Act sets out notification obligations as follows:

  1. Notice of the Petition must be delivered by the petitioner to the Registrar of Companies within three days of its presentation;
  2. Notice of appointment as Examiner must be published by him in two daily newspapers within three days after appointment;
  3. Notice of appointment as Examiner must be published by him in Iris Oifigiuil within 21 days after appointment;
  4. Within three days after his appointment, the Examiner shall deliver a copy of the court order appointing him to the Registrar of Companies;
  5. Where a company is under the protection of the court, every invoice, order for goods or business letter issued by or on behalf of the company shall include the words ‘In Examination (under the Companies (Amendment) Act 1990’) immediately after the name of the company.

Examiner’s Powers

The Examiner has the following powers:

  1. The Examiner has the same rights and powers which an auditor has in relation to the supplying of information and co-operation;
  2. The Examiner has the power to convene, set the agenda for, and preside at meetings of the board of directors and general meetings and to propose motions or resolutions;
  3. The Examiner is entitled to reasonable notice of, to attend and be heard at all meetings of the board of directors and all general meetings.

The Act provides that the Examiner may certify liabilities of the company incurred during the protection period. Liabilities so certified are treated as expenses properly incurred under the Act.

Directors’ Powers

Unlike liquidations or receivership, the directors remain responsible for the day-to-day management of the company. The principal task of the Examiner is to “examine” the company’s affairs and formulate a compromise or scheme of arrangement. In practice, the Examiner will work closely with the directors to re-assure creditors, employees and staff.

Restriction on Payment of Pre-Petition Debts

The payment of pre-petition debts is restricted by the Act, which provides that no payment may be made by a company, during the period it is under the protection of the court, by way of satisfaction or discharge of the whole or part of the liability incurred by the company before the date of the presentation of the Petition. However, there are two circumstances where payments in respect of the pre-Petition may be made: firstly, where the report of the independent accountant recommends that the whole or part of that liability should be discharged or satisfied, and secondly, where an application is made by the Examiner or any interested party for an order authorising the payment or discharge of the liability.

Meetings of Creditors and Members

The Examiner must formulate proposals for a compromise or scheme of arrangement as soon as is practicable after his appointment. Once he has formulated his proposals, the Examiner must convene and preside such meetings of the members and creditors as he thinks proper and report back to the court on those proposals within 35 days of his appointment. The meetings must be convened by notice in writing to each member of each class of member and creditor, giving not less than three days’ notice. The proposals, together with a statement explaining the effect of the compromise or scheme of arrangement on the interested parties and forms of proxy (both special and general), should also be sent with the notice. At the meetings, the Examiner puts forward his proposals for the consideration of those present either in person or by proxy. The Examiner will answer questions put to him in relation to the scheme of arrangement and the Examinership. Modifications to the scheme may be proposed, but will only be incorporated into the scheme with the consent of the Examiner. The Examiner’s proposals are then put to a vote. The proposals are deemed to be carried at a particular meeting if a majority in number holding a majority in value vote in favour of the proposals. To be valid, a quorum must be present at each meeting. In the case of a members’ meeting, at least two members must be present; in the case of a creditors’ meeting, at least three creditors must be present. The Examiner acts as chairman of the meetings and must arrange for minutes of the meetings to be kept. The chairman, like in all creditors’ meetings, may deal with the validity of proxies and votes. The Examiner is required to report to the court on the outcome of the meetings of members and creditors.

The court may not confirm the proposals:

  1. Unless at least one class of creditors whose interests or claims would be impaired by implementation has accepted the proposals;
  2. or If their sole purpose is the avoidance of tax due;
  3. or Unless the court is satisfied that the proposals are fair and equitable in relation to any class of members or creditors that has not accepted the proposals and whose interests would be impaired by them and that the proposals are not unfairly prejudicial to the interests of any interested party.

Dealing with the Banks

In many Examinerships the role of the Company's banks need to be carefully considered. In some cases, the Banks will actively support an Examinership as being the best way for the Company to move forward.

It is possible for the banks to write off a portion of their debt (even if the bank has a fixed charge supporting its security) in order for the Examinership to be successful. Often, the banks will take a commercially pragmatic view as to whether they should write off a portion of their debt. For example, in previous cases, the Bank has effectively agreed to write off a portion of its debt in respect of the fixed charge which it had on Company's leasehold interest. The commercial reality of leasehold interests is that they are difficult to sell, and thus it is no surprise that the Bank took a realistic view of the situation and wrote off a portion of its debt.

While the bank may write off a portion of its debt, any personal guarantees in respect of the debt written off will remain in place, and may be called upon. In practice, it may be possible to negotiate a settlement of such personal guarantees.

Dealing with Defined Benefit Pension Schemes

The collapse in both the equity markets and the property markets has effectively made many Defined Pension Schemes insolvent, which will cause severe financial difficulties for contributing employers. Using the provisions of the Examinership legislation, it is possible for companies to re-structure their debts due to such schemes.

What happens if an Examinership is not successful?

If the Examinership is not successful, then the Company will be placed into liquidation. In such an event, it is possible that the company's bankers may appoint a Receiver.