Companies (Miscellaneous Provisions) Act 2013.

Insolvency Companies Act

On 24 December 2013, the Companies (Miscellaneous Provisions) Act 2013 (“2013 Act”) was signed into law. The main (but not the sole) focus of this Act is to enable small companies to apply directly to the Circuit Court for examinership and the protection it can afford.

Originally, the contents of the 2013 Act were to be contained in the Companies Bill 2012. Due to the size and complexity of the Companies Bill 2012, its enactment is expected to take place later this year and as a result, we got the 2013 Act in an effort to expedite the examinership regime as it is now introduced.

Examinership is a court-protected rescue process that allows an otherwise insolvent company which has a prospect of survival, a chance to restructure its liabilities. The court (if it is satisfied there is a prospect of saving the business) can afford the company protection from its creditors for period of time so that it can try to reorganise itself on a sustainable footing. The concept of the process is simple. A fundamentally good (but insolvent) business finds itself in financial difficulty. It could for example be the unsustainable rent of a big business premises, which is no longer fit for purpose. This new regime is aimed at helping businesses with large potential for growth and job-creation, but who are being held back by legacy debt issues.

The aim of this new procedure it to make the process more “localised”. Rather than having to apply in the High Court in Dublin (as was previously the case), application can be made in the Circuit Court in the area in which the registered office of the company is situated at that time or in which it has, at that time, its principal place of business.

It is hoped that this new process will be less cost prohibitive and more accessible for local businesses. For example, in Ireland, less than 2% of insolvencies are resolved through examination, compared with nearly 25% of insolvencies in the USA that enter Chapter 11 (a comparable process to Irish examinership).

To qualify for this new procedure under the 2013 Act, the company in question must satisfy at least two of the following three conditions :

  • Have a Balance Sheet which does not exceed €4.4million;
  • Have a Turnover of €8.8million or less; and
  • Have no more than 50 employees.

While all these changes are to be welcomed, one must be hesitant as this new Circuit Court system will become meaningless unless local practitioners up-skill to the level where they can give their clients the specialist advice they need, or establish business links with specialist insolvency practitioners. There is a general consensus amongst such practitioners that examinership could continue to be seen as something best done in the High Court regardless of the new regime.

Furthermore, a change of approach will be required among banks and other secured creditors regarding the examinership process. Under the examinership regime, an examiner can not unfairly prejudice a bank; yet the accepted view persists that most banks oppose the very concept of examinership, if at all possible. Banks typically prefer the ability to privately control the level of write-down they suffer. Inevitably, this is done by the banks in the receivership process (whereby a bank appointed person controls the sale of assets or the business of a company for the bank), even if the return to the bank is less than would be achieved under the going concern process of examinership.

A total of 716 SME jobs in Ireland were saved in the first nine months of 2013 through the process of examinership. The number of jobs saved can only increase with the move to the Circuit Court system if practitioners, banks and the business community as a whole embrace this Government initiative. If they do, this should mean that examinership will be considered (and effected) for small companies in circumstances where it would not have been otherwise considered before and such businesses will survive and hopefully expand. We will have to wait and see.