An option available to financially troubled companies is Examinership. The company gets Court protection from its creditors, new funds are invested and a settlement is made with creditors usually involving a significant write down of debt. This is only possible for companies with a sustainable commercial future but which are unable to pay their debts.
Company suitable for Examinership
-Reasonable prospect of survival
-Sufficient assets in place to cover the costs of Examinership
-Scheme of Arrangement can be formulated for creditors and members
Company not suitable for Examinership:
-The company has no cash flow
-The company has ceased trading
-No possibility of attracting new investors
-No support from its dominant creditors
-No support from its bankers
Examinership enables companies to be placed under the protection of the court for a period of time, while the future prospects and viability are assessed. An Examiner, appointed by the court, will review the company’s affairs, consider its viability and if feasible, formulate proposals for its survival.
What Happens in an Examinership?
The Examiner prepares a financial plan based on the independent accountant’s report and then negotiates a settlement with the creditors normally involving a write down of their debts in return for payment of an immediate dividend to them.
The process of appointing an Examiner
a petition is presented to the High Court by the company, directors of the company, a creditor or a shareholder who has at least 10% voting rights at a general meeting;
an independent accountant’s report is prepared outlining the current financial position and its prospect of survival; and
Protection: if the court decides that there is a reasonable prospect of the company’s survival it will grant court protection for a period of three months. The possibility of an extension of not more than 30 days is provided for in the Act and the possibility of a further extension at the discretion of the court is provided for in the Act.
where the Examiner has sourced investment he will formulate a scheme of arrangement, send it to creditors and hold creditors meeting. The scheme of arrangement will be voted on by creditors.
provided at least one class of impaired creditors votes in favour of the scheme, the Examiner will seek Court approval of the scheme.
The Companies Act 2014 provided a new SME-friendly Examinership regime. The Act allows an Examinership to be dealt with through the Circuit Court rather than the High Court and can reduce legal costs significantly.
The qualifying conditions for Examinership-lite are where two or more of the following criteria are met for a particular year:
-The turnover does not exceed €8.8 million
-The balance sheet total does not exceed €4.4 million;
-The average number of employees does not exceed 50
What happens to bank debt in an Examinership?
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. In the current environment where property values have decreased, the banks may take a commercial pragmatic view as to whether they should write off a portion of their debt. Banks are accepting write downs of their debts to the actual market value of the security held. Such write downs are a reflection of commercial reality.
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.
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.
-At D V Mannion & Co we can provide advice and assistance to SME’s at an efficient cost in preparing an application to the Court for the appointment of an Examiner;
-We can prepare the independent accountant’s report in support of a petition to the Court for protection;
-We can act as Examiner at an efficient cost on the nomination of the shareholders, director or creditors.
Rose Marie Keaveney FCA CPIP