Examinership – A potential lifeline for struggling businesses

The High Court appointed an examiner to three connected companies involved in the food distribution industry on 27 March 2020 in what was effectively the first examinership of the Covid-19 pandemic period.  Fieldfisher acted on behalf of Wert Capital Ltd which was the parent company for a number of food distribution entities in a successful application for court protection for the Group from their creditors.
 
Examinership is a Court managed restructuring process whereby a company is protected from its creditors for seventy days (extendable to one hundred days on application to Court). Due to the pandemic, many companies will be struggling with demands from creditors, cash flow difficulties, employment law difficulties and an inability to pay rent or mortgages. The Examinership process which is contained in Part 10 of the Companies Act, 2014, is specifically designed to assist companies encountering short term liquidity problems, and can be an invaluable process to secure the survival of a viable business and protect employees.
 

Brief outline of the Examinership process

• At the outset, a company prepares a petition which is presented to the Court, together with an Independent Experts Report confirming that the company will have a reasonable prospect of survival provided certain actions are taken. The Court must be satisfied that the company  is insolvent but that no measures have been taken to wind it up. Where the Court is satisfied that the statutory requirements are met, the company will come under Court protection and an Examiner, who is an expert practising accountant, will be appointed.

 

• The Company can continue to manage its own affairs and trade during the protection period. During this time the Examiner attempts to restructure the company and identify an investor. The Examiner relies on investment to prepare a Scheme of Arrangement with creditors, wherein each class of creditors is allocated a dividend in lieu of its debt. The Examiner must ensure that each class of creditors will receive a higher dividend than would be available in a liquidation and secure the support of at least one class of creditors for the Scheme of Arrangement.

 

• If the Examiner can agree a viable Scheme of Arrangement with the requisite support, he can then apply to the High Court for approval. Once approved by the Court, the Scheme is binding on all classes of creditors whether they supported it or not.  Where the process is successful the business is saved and can trade on, jobs are preserved and the local economy continues to benefit.

If you are a director or shareholder of a company which is currently insolvent or encountering severe cash flow challenges, but which has a reasonable prospect of survival, our experienced Insolvency department can advise you on the suitability and requirements of the Examinership process.

Written by Mark Woodcock.