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Examinership
The Examinership Process
• Section 509: grounds for the appointment of an examiner as being: when the co is, or is unlikely to pay its debts; no resolution subsists for its wind up; and no order has been made to wind up the co. There will be no order made unless the ct is satisfied that there is a reasonable prospect of survival and of the co as a going concern.
• Inability to pay its debts: inability to pay its debts as they fall due if the value of the assets is less than the value of the co’s liabilities or where Section 570 is at play.
• Who can petition the ct? Section 510: company, directors, creditors, members and the central bank. Section 511: petition needs to be accompanied with a report from an independent accountant. Petition is usually made by directors.
• Section 512: petition must be presented within 3 days or the receivers appointed will not be disturbed. Petitioners reacting to the appointment of a receiver must now instruct an independent accountant and assist him in the preparation of the report within 3 days.
• Section 513: allows for interim protection by virtue of exceptional circumstances outside the control of the petitioner and which he could not have reasonably anticipated the report, of the independent accountant is not available.
• Section 516: copy of the independent accountant’s report must be furnished to the co and any interested party, and ct may order material to be first deleted where such information is sufficiently sensitive to prejudice the co’s viability. The report must set out relevant information concerning the co, as well as a statement of affairs including an opinion in relation to any deficiencies in the co. Report may also include the independent expert’s opinion on whether the co would have a reasonable prospect of survival as a going concern and a statement of the conditions essential to ensure such survival.
• Creditors to be heard: Section 515. Effect on creditors: Section 520. The position of those involved with the co: ordinary creditors have no right to petition the co. Secured creditors: Re Holidair- enforcement of charges is prohibited unless the examiner consents.
• Section 518: duty to act in upmost good faith in relation to the petition. Ct must decline to hear a petition if it appears that the independent accountant failed to disclose relevant information.
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• If there are irregularities in the co’s affairs, court can make an investigation: Section 524(7). Contracts are dealt with: Section 525.
• Powers of examiner: Section 528: transfer powers from directors. Examiner may borrow, seek directions from the ct, same right to information as an auditor does.
• Section 529: certification of certain expenses by the examiner. Re Edenpark Construction: liabilities must be certified; the period runs from appointment and terminating with cessation of the protection; and the certification by the examiner must take place when the liabilities occurred. The liabilities are treated as expenses: Section 154. Payments are as follows: examiner costs (Section 554); fixed charges; liabilities Section 529; and post examinership liquidation costs.
• Section 530: assets are still subject to security. Re Atlantic: examiner could borrow against the fixed assets where there was a first fixed charge already in place. Negative clause in a debenture: Re Holidiar: such a clause did not apply to examiners and that the examiner could disregard it with the sanction of the ct. This case also noted that it would not prejudice debenture holders to de-crystallise a floating charge as the co can continue to collect book debts.
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• Section 541: one class of members need to consent and cannot unfairly prejudicial one group- Re Goodman International and Re Antigen Holdings.
• Ct must investigate any material irregularity under Section 243 i.e. improper purpose. Is there any tax avoidance under the arrangement? Is it unfairly prejudicial? Is it fair and equitable? Ct may also take account of any other relevant circumstances. Re Wogans- debts were deliberately understated.
Examiners Duties
• Section 534: examiner will as soon as practicable after appointment, formulate proposals for a compromise/scheme of arrangement and perform such other functions as the ct may direct. The examiner will convene and preside over a meeting of members and separately a meeting of creditors to consider proposals for a compromise/scheme of arrangement. After 35 days, an examiner is obliged to report to ct as to whether he or she has been able to formulate any proposals for a compromise or scheme of arrangement to rescue the co.
• Section 535: if examiner is unable to secure agreement or formulate proposals for compromise/scheme of arrangement, she may apply to the ct for directions.
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• Section 540: consideration by members and creditors of proposals: along with the notice convening the meeting sent to the creditors and members, a statement must also be sent explaining the effect of the compromise/scheme of arrangement. Section 541: proposals are then brought before the ct, which decides whether to confirm them or reject them. If the ct confirms the proposals, they are binding on everyone concerned including all members and creditors and on anyone who is liable for the debts of the company. Section 547: guarantor’s liability is not affected by the fact that the debt is the subject of a compromise/scheme of arrangement. Where the court refuses to accept the proposals, the co may be wound up.
• Section 532: examiners are personally liable for any contracts entered in their own name or in the name of the company and are entitled to be indemnified (reimbursed) out of the assets of the company at the discretion of the ct.
• Section 533: when it appears to the ct that there is evidence of a substantial disappearance of property of the co concerned that is not adequately accounted for, or other serious irregularities, the court shall hold a hearing to consider that evidence.
• Meetings: examiner has the power to convene, set the agenda for and preside at board meetings of the directors and general meetings of the company and propose resolutions and present reports at such meetings.
• Contracts: an examiner cannot repudiate a contract prior to her appointment. However, an examiner may where he or she is of the opinion that the provisions of an agreement entered into by the company, were it to be enforced, would be likely to prejudice the survival of the company, serve notice on the party or parties to the agreement to repudiate the agreement.
• Property disposal: examiner can apply to the ct for the return of property disposed of by the co if she considers that the effect of the disposal was to perpetrate a fraud on the co, its creditors or members. Where the ct is satisfied of this, it may order the return of the property or the proceeds of sale of such items as it sees fit.
• Fraudulent and reckless trading: examiner may institute proceedings where an officer of the co was knowingly a party to the carrying on of any business of the co in a reckless manner or where any person was knowingly a party to the carrying on of any business of the co with intent to defraud its creditors or for any fraudulent purpose. Ct can declare that such persons are personally responsible, without any limitation of liability, for all or any part of the co’s debts or other liabilities of the co. Ct has the power to relieve any person of liability in whole or in part where it appears that the person concerned acted honestly and responsibly in relation to the conduct of the affairs of the company (defence raised).
Examinership Protection
• Protection period: where an examiner is appointed, the period of protection lasts for 70 days from the date of presentation of the petition, unless the protection is withdrawn or extended.
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What is Examinership?
• Examinership is a period (normally 70 days) of temporary court ordered protection, investigation and administration of a co’s affairs by an examiner. The purpose of examinership is to simply allow the company to recover and avoid liquidation. Recent figures in Ireland however show that examinership is a very unpopular option for insolvent co’s.
• The purpose of examinership is to protect the co (as well as shareholders and employees: Re Atlantic Magnetics) and the examiner will have to report to the court on the reasonable prospect of survival. Re Holidair: purpose of examinership is to provide a period of protection whereby the co is immunised from the actions of creditors; and to investigate the affairs of the co and make proposal for its survival to ensure that the co continues as a going concern where possible.