Can I go into examinership?

Q.I own a small manufacturing company which is in trading difficulties. My creditors are mounting as my cashflow comes under pressure. The company premises which cost €750,000 were financed through a bank loan and meeting the payments on this has proved increasingly difficult. I have been reading in the papers about examinership and it appears that the examinership process might be a way of protecting the company against my creditors and preserving the trade and the related jobs. Is this possible?

A. While the examinership process is designed to produce a final scheme that can save viable companies, it is really only suited to larger companies because of the significant costs involved. I would estimate that a minimum figure for an examinership process to cover all professional costs would be circa €150,000 to €200,000. Therefore, I am not going to go through the examinership process as I don’t think that it is relevant to you.

Scheme of Arrangement

There is a Court alternative to an examinership which can achieve the same result. This is the scheme of arrangement provided for in section 201 CA 1963

The process allows the company to formulate a scheme of rearrangement of its capital structure. The company then applies to the Court which has the power to authorise a meeting of creditors or members. If at the meeting 75 per cent of the creditors in value and members agree to the scheme, it becomes binding even on dissenting creditors and members.

Requirements to be met for a Scheme of Arrangement to be put in place

1. The applicant must have locus standi. This is a legal term requiring that the applicant has a valid interest in the company and the application. Groups which are considered to have the requisite interest include the company, its members, and its creditors.

2. The company must be in support of the application. This requirement prevents a scheme of arrangement being foisted on an unwilling company by one of its creditors.

3. The scheme must be legal.

4. Where a scheme involves a reduction of capital, certain minimum capital requirements under S.73 CA 1963 must be complied with.

Meeting of creditors and members

The first step to be taken is the application to the court to begin the scheme of arrangement process. If the application is approved a creditors and members meeting is called. In some instances it may be necessary for several meetings to be called, this will depend on the number of different classes of creditors and members.

When sending notifications of the meeting to creditors they must also be supplied with a statement explaining the effect of the proposed arrangement and details of any material interests of the company’s directors. Similarly, where a notice is published, it should contain the above information or details as to how it can be obtained. Where 75 per cent of the creditors in value and members agree to the scheme, it can then be court sanctioned.

Clearly, this process requires personal engagement with creditors before the application to the court and the meetings take place.

Court Sanction

Where the requisite majority has been met, the court can make the scheme binding. However before the scheme becomes binding, the court will give consideration to the following:

Compliance with statute. All legal requirements to be met to enable the scheme to be approved must have been complied with eg, has the requisite information relating to the scheme been provided to creditors and members?

· Each of the relevant classes must be fairly represented and a bona fide majority agreement must have been reached.

· Finally, the scheme must appear reasonable in the Court’s eyes to an intelligent person of business. Fairness, reasonableness and impartiality are prerequisites of any scheme to be sanctioned by the court.

If the Court is reasonably happy but retains some reservations, it can sanction the scheme subject to certain undertakings by the company. Alternatively, the scheme can be sanctioned with no such undertakings required.

You mentioned that you currently have a mortgage on your company’s premises. This is a secured debt and the bank could potentially put a Receiver in place under its fixed and floating charge. The Receiver can take control of the premises and could sell the property and other company assets to satisfy the banks debt. However, given the current property market, it is likely that the Receiver would make a loss on the disposal of the property. You need to bear this in mind when formulating a scheme of arrangement.

The above is a very brief overview of how schemes of arrangement work. There are detailed rules and procedures involved in implementing a scheme so professional advice should be sought well in advance so that you fully understand the potential impact on the company of going down this route. There is no doubt however that the scheme of arrangement is a more viable option than an examinership.



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