Law & Regulation
Examinerships back in vogue
By S Heaphy
Aug 7, 2008 - 7:31:00 AM

'Figures published by Experian Ireland Business Information Division, show a significant rise in the overall number of insolvency appointments made in the last quarter of 2007.  It also highlighted a marked increase in the number of companies seeking protection from its creditors through the Examinership process.

During 2005 only four appointments were made, increasing substantially to 25 Examiners appointed in 2007 and indications for the first half of 2008, suggest this upward trend is continuing' says Brendan O’Donoghue, Director of Corporate Recovery & Restructuring with Russell Brennan Keane.

What is an Examinership?

The examinership process was introduced under the Companies Amendment Act, 1990 to provide an opportunity for insolvent but potentially viable companies to be rescued.  Whilst the Examiner does not take over the day to day running of the company, the process provides a troubled business with breathing space and allows its shareholders and directors to reassess and focus on what is the best way forward.

For the shareholders and directors, the process allows them to draw breath and consider their options after what has invariably been a pressurised and traumatic period.  Do they wish to go forward with the business or seek new investors to come on board?  What were the key issues leading to the current plight and what lessons can be learned?

Examinership differs from liquidation in that the examination process provides a business with a defined period of time, to enable it to deal with its debts and to reorganise its financial structure going forward.  Whereas, liquidation sounds the death knell for a company leading to the breakdown and disposal of its assets in an attempt to part discharge its creditors. 

The benefits of examinership over liquidation are that the process if successful, results in survival of a viable business and the ordinary or unsecured creditor invariably receive a dividend (albeit a small one on occasion) whereas a dividend is unlikely in many liquidation cases.  The process if successful will also result in the creditor retaining its customer going forward. 

The Process

“The process can be difficult with a number of hurdles to be scaled before getting into the High Court but once the examiner is appointed there is a large element of relief that there is now an expert on board to share and deal with the difficulties faced by the business” says Brendan O Donoghue.

Upon his appointment, the Examiner sets about examining the affairs of the business with a view to ascertaining its future viability and formulating a scheme of arrangement to present to the shareholders and creditors.  In circumstances where the Examiner is satisfied that the company is capable of survival, he will proceed with the formulation of the Scheme of Arrangement.  Creditors are grouped into various classes in accordance with their legal entitlement, typically;

Secured         Banks and / or Financial Institutions who hold mortgages charges over company property / assets

Preferential    Revenue Commissioners, Employees

Unsecured     Trade suppliers of goods and services

“The most rational approach is to allow the Examiner to do what is required in an objective manner for the company and the individual directors / shareholders involved” says Brendan O’Donoghue.

Success Stories

High profile companies which have successfully emerged from the examinership process since the legislation was enacted include Cityjet (Airline), Shamrock Rovers Football Club and Chorus Communications (Digital / Cable TV provider).  There also have been successful outcomes for many smaller and less known businesses.

Given current sentiment and indicators regarding the Irish economy, it is likely that we will see more companies and their advisors giving serious consideration to embarking on the examinership process.

Signs indicating your business could be in danger?

The key is to know when things are beginning to tighten and slow.  So what should business owners have on their radar?  Brendan says “Business owners need to watch out for the following changes:

1. Working Capital deteriorating
2. Liquidity issues arising
3. Increased sensitivity to inflationary costs, oil / energy costs
4. Loss making Contracts
5. Damaging impact of change in markets, eg. current construction downturn
6. Weakened dollar & sterling currencies

“The difficulty facing a lot of companies and management in today’s economy, is that they have not seen the bad days or experienced a recession, and as a result, are not armed with the necessary skills to identify problems at an early stage and be proactive in taking corrective steps” says Brendan. “Business Managers are often reluctant to face facts and to make hard decisions thus losing valuable time in plotting their survival”.