Examinership
A copy of the resolution (if written) or an extract of the minutes of the meeting at which the decision to petition for the appointment of an examiner is made should be exhibited to the verifying affidavit.
[2]: 12.45 Where the petition is presented by the directors, it is necessary to exhibit to the verifying affidavit evidence of a properly passed board resolution.
The principal legal test for the appointment of an examiner is whether or not there is a reasonable prospect of the survival of the company and the whole or any part of its undertaking as a going concern.
It should contain a comprehensive explanation of the reasons for the company's current financial difficulties and, where applicable, the measures the directors have taken to remedy the situation.
Essentially, it must put basic information before the court and give a view regarding whether or not proposals for a compromise or scheme of arrangement would offer a reasonable prospect of the survival of the company and all or part of its undertaking as a going concern.
The independent accountant should say whether, in his or her view, an attempt to continue the whole or any part of the undertaking would be more advantageous to the members and the creditors as whole than a winding up of the company would be.
As with the petitioner, where the independent accountant has failed to exercise utmost good faith, the court may decline to hear the petition.
[19]: 1108 In practice the courts appear to be of the view that there is insufficient time in the course of an examinership to conduct a detailed investigation in relation to potential breaches of company law and where the possibility of such breaches arise in the confirmation hearing the court may simply decline to grant the petition.
Although each situation will vary, one of the primary reasons for seeking the appointment of an interim examiner is to facilitate him commencing his work immediately rather than waiting until after the full hearing.
In addition, it is often felt that the appointment of an interim examiner offers a certain level of reassurance to creditors and suppliers and to the company's employees who are frequently unaware of the intended application until after it has been made.
Section 12 of the Companies (Amendment) Act, 1990[23] sets out a number of formalities that must be adhered to in relation to the appointment of an examiner.
If the court is satisfied that there us a reasonable prospect of survival of the company and all or part of its undertaking it may exercise its discretion to appoint an examiner.
The court will consider issues such as whether there has been full disclosure by the applicant, the conduct of the directors and, the impact on employees in exercising its discretion in this regard.
Unless recommended by the independent report or otherwise approved by the court on application by the examiner, the company cannot discharge any liabilities incurred prior to the presentation of the petition.
[3]: 1362 Typically, the independent accountant's report will recommend payment of any arrears of wages to employees together with any suppliers or trade creditors that are essential for the survival of the company during the protection period.
Meetings of creditors and shareholders to consider any scheme of arrangement must be held within 35 days (or within a longer period on application to the High Court) from the date of appointment of an examiner.
[3]: 1373 In practice, the meetings of creditors and shareholders rarely take place within the first 35 days of the protection period and the examiner usually applies to the High Court for an extension of time in which to file his report.
Importantly, if, at any stage, the examiner forms the view that the company no longer has a reasonable prospect of survival, he should make an application to the High Court pursuant to section 18(9) of the Companies (Amendment) Act 1990[26][27] for directions and the court may, on such application, give such directions or make whatever order it thinks fit, including an order discharging the examiner, lifting the protection of the court and directing that the company be wound up.
[1]: 1435 [28] The examiner's most important function is to attempt to formulate proposals for a scheme of arrangement which will facilitate the survival of the company and the whole or part of its undertaking as a going concern.
In broad terms proposals which write down a fixed chargeholder's debt to below the inherent value of the charge will likely be considered unfairly prejudicial.
Absent consent from the affected creditor, the examiner will be required to make an application to the High Court before any such disposal occurs.
In the case of a fixed charge, the amount payable will include not only all principal and interest, but also any costs to which the chargeholder is entitled by law or under the terms of the security.
[19]: 1103 An examiner's remuneration and costs take precedence over the rights of a fixed chargeholder in the event of a subsequent liquidation of the company.
However, absent agreement, it is not possible to reduce the rental payment going forward or to change the rights of the lessor in relation to non-payment of rent or breach of other covenant in the future.
While there is a prohibition on enforcing guarantees given by third parties during the protection period, the guarantors' liability remains notwithstanding that the principal debt may be varied pursuant to a scheme of arrangement.
[3]: 1355 Failure to adhere correctly to the notice procedure can result in a creditor losing its rights pursuant to the guarantee.
[3]: 1356 At the hearing where the scheme of arrangement is considered by the court, any creditor or member whose claim or interest would be impaired if the proposals were implemented, has a right of audience.
The examiner must make an application to the High Court for payment of his remuneration, costs and the reasonable expenses incurred by him.
[24]: 92 The application is made ex parte grounded on an affidavit sworn by the examiner providing details of all work carried out by him and his staff in the relevant period.
Until 2006, an average of 10 companies per year sought examinership, with the onset of the Irish financial crisis the number exceeded 60 in 2008.
