To Examine, or not to Examine | Fieldfisher
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To Examine, or not to Examine



It is almost 30 years since the commencement of the Companies (Amendment) Act 1990 (the “1990 Act”) which introduced the concept of Court protection for certain companies from their creditors to allow a formal restructure of a company’s debt. The examinership process is now governed by Part 10 of the Companies Act 2014 which mirrors the procedure provided for in the 1990 Act. 
Examinership process
This ‘salvage process’ offers a company in distress the assistance of an Examiner and a window of up to 100 days to put in place a scheme of arrangement with creditors which would  secure the survival of the company as a going concern. This will usually require a capital injection of funds from an investor, a substantial write down of the company’s liabilities and a change in ownership and / or management of the company. By this re-organisation, the company can continue to trade, employees will retain their jobs and commercial contracts with suppliers can be maintained. 
The test when considering whether a company should obtain the protection of the Court is whether the company, subject to a formal restructure set out in a report to the Court, has a reasonable prospect of survival as a going concern. This will require an analysis of the trade of the company, its market position and prospects for future trade when its debts are restructured.
The process has essentially three stages - all of which are fast paced and ever changing:
  1. The petition
While the company, a member of the company or a creditor can apply for Court protection, the applicant is usually the board of directors.
The application is accompanied by a report prepared by an independent expert, usually an accountant, who confirms having reviewed the company's books and records, its financial status and the nature of the trade, that it has a reasonable prospect of survival subject to certain conditions.
These conditions are typically a significant capital investment into the Company which is used to write down aged debt and a restructuring of the company's liabilities so that it can return to profitable trading. It is also typical that the report would confirm that by the implementation of certain steps the company can continue to profitably trade into the future and the majority of jobs will be maintained.
  1. The protection period
If the Court is satisfied that the company has a reasonable prospect of survival, an Examiner is appointed and the company is protected from its creditors for an initial period of 70 days (which can be extended up to 100 days). This part of the process requires a commitment from the company its officers and staff as the Examiner requires full co-operation to prepare and present a Scheme of Arrangement.
During this period, the Examiner will review the company’s trade and advertise for investors. He or she will engage in an often demanding and time sensitive due diligence process with potential investors a view to identifying a preferred investor for the company. Once a preferred investor is identified, the Examiner will prepare a proposal for the survival of the Company (the “Scheme of Arrangement”) which is presented to creditors for approval and then to the Court.
This process is extremely fluid and usually raises issues of property law, company law and employment law as well as insolvency law. During this period, the Examiner will report periodically to the Court on the progress of the process.
  1. The Scheme of Arrangement
When a Scheme is formulated and approved by at least one class of creditors, it can be presented to the Court for confirmation.
If the Court is satisfied that the Scheme has the support of one class of creditors and the other creditors are not unfairly prejudiced (since it is usual that a substantial write down of the debts will be proposed), the Court can impose the terms of the Scheme on all creditors, whether they voted in favour of it or not.
In order to satisfy the Court that no class of creditors has been "unfairly prejudiced" the Scheme of Arrangement must contain a dividend payment to which is higher than that class would receive in a liquidation.  
It has been traditionally the case that where an Examiner cannot agree a scheme of arrangement, the Court makes an order winding up the company and appoints a liquidator to do so. This is because in order to obtain the protection of the Court in the first place, a Company must demonstrate that it is insolvent.
Surviving examinership without a Scheme of Arrangement  
We recently acted for the Examiner of a large residential care home where it was not possible to agree an investment in time to put a Scheme of Arrangement to the creditors within the 100 days of Court protection.
However, discussions with an investor were at a very advanced stage and during negotiations between the Examiner, the Company, the investor and the Company’s largest creditor (the “Bank”) as well as the key creditors like to Revenue Commissioner, we procured a formal withdrawal of the Bank’s demand pending the completion of the negotiations with the investor. Agreements were reached with other significant creditors regarding their debts. 
We made submissions to the Court that the withdrawal of the Bank demand rendered the company solvent on a cash flow basis and various agreements with the different creditors meant that the company could proceed as a going concern, after the Court protection expired.

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