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Examinership: the Irish Rescue Process 30 Years Later

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Examinership: the Irish Rescue Process 30 Years Later eXa minerSHiP in ireLa nD Examinership: The Irish Rescue Process 30 years later Professor irene Lynch Fannon reports on the successful history of the process in ireland which contains all of the key features in the new Directive n 1990, Ireland Examinership process can be controversial ability of the introduced a rescue divided into three periods. In the examiner to disclaim pre-existing Iprocess1 which reflects all initial phase, the process contractual agreements, which was of the main components of the represented quite a radical subsequently amended in later Preventive Restructuring departure from the existing legislation.12 In addition, the use of Directive (1023/2019) insolvency framework, which had the provisions allowing the (“Directive”). been dominated in the 1980s by examiner to borrow new funds, This procedure was originally significant liquidations and the together with a certification of contained in a larger scheme of ever present possibility of expenses, was used in a corporate law reform and receiverships – a significant right controversial manner to give consolidation designed in the late granted to secured creditors, additional priority to new 1980s,2 but the rescue process was which continues to be a feature of financiers.13 Now, however, a IRENE LyNCh FaNNON Professor of Law, University extracted and passed hurriedly in insolvency proceedings in most distinction is expressly made in the college cork, ireland September 1990 to respond to a common law countries.9 In this Companies Act 2014 between the crisis in the Irish beef industry. phase, a number of decisions of certification of liabilities and This first outing of what was the Irish High Court and Supreme expenses necessary to secure the called the Examinership process3 Court underlined the radical survival of the company during was a spectacular success leading nature of the process, particularly the protection period and the to the rescue of the Goodman when it provided for the question of new financing during Group.4 The remainder of the compromise of existing creditor the compromise period. original legislation was passed later rights to facilitate new investment. in 1990.5 Commentators on the Directive Settling down The Examinership process would do well to understand that In a second phase, following some contains all of the key features in the intent of a rescue process is to amendments to the process in the Directive. It provides for a stay disrupt with a view to rescue and 1999,14 in response to concerns of 70 days with the possibility of so, it is argued here, that some from lenders, the examinership extension. There is a threshold test compromise of existing rights is process settled down. That said, where the court6 must be satisfied absolutely necessary for rescue to the period from 1999 to 2004 was that the company is insolvent or work effectively. a period of boom, sometimes likely to be insolvent, that there is a Decisions in Re Atlantic referred to as the ‘Celtic Tiger’ ‘reasonable prospect of survival’7 Magnetics Ltd. and Re Holidair10 years where there was not much and that no petition for the underlined the important changes need for formal corporate rescue. winding up of the company to the insolvency landscape 8 Ongoing supervision and the persists. There is also a provision introduced by examinerships. In Court’s role for intra- and cross-class cram Atlantic Magnetics Ltd., THE down and a final confirmation of McCarthy J. in the Supreme In the third phase, following the “ financial crisis, the importance of EXAMINERSHIP the plans by a judicial authority, Court noted that examinership namely the High Court. The was introduced to provide for the examinership again became PROCESS legislation also provides for a test protection of the company and its apparent. A key feature of the of fairness under the rubric of creditors as a whole, stating that process is the ongoing role of the CONTAINS ALL ‘unfair prejudice’ as also described the ‘fate of the company and those courts which provides the benefits OF THE KEY in Article 11 of the Directive. who depend upon it’ should not lie of ongoing supervision. This has solely in the hands of secured become very important in terms FEATURES IN The three phases of the creditors ‘to the inevitable of bringing the negotiation of a compromise to successful THE DIRECTIVE history of Examinership disadvantage of those less protected’.11 In this phase, the completion. Nevertheless, this courts supported a significant characteristic adds to the cost of A radical departure the process. In 2013, legislation Over the 30 years since its rearrangement of creditors’ expectations, including a quite was introduced to allow for the ” introduction, the use of the conduct of examinerships through 22 | Spring 2020 eXa minerSHiP in ireLa nD a lower court with a view to nor indeed all situations, has led to 4 Re Goodman International (28 January 1991), HC, Hamilton P, (1963–1993) Irish Company Law reducing costs and making the a measured response to the Reports 623. process more attractive to the ebullient early days of 5 Companies Act 1990. Both pieces of legislation are now consolidated in the Companies Act 2014. SME sector. This legislation is now examinership and corporate The Examinership process is contained in Part 10 consolidated in the Companies rescue. A cautionary note to of that Act. Act 2014. As a strategy its success sound, following the 30-year 6 All references to ‘the court’ in the Irish context THE IRISH means the Irish High Court. “ has been limited. period of examinership, is that, 7 The original legislation provided for a prospect of EXPERIENCE Also in the third phase, although rescue is an important survival. The requirement that this should be a ‘reasonable prospect of survival’ was added in the decisions such as Re Vantive part of the insolvency framework, Companies (Amendment) Act 1999. PROVIDES A RICH Holdings and McInerney15, have it must not be overrated.18 The 8 Section 509, Companies Act 2014. VEIN OF STUDY underlined the role of the court in policy objectives of rescue are 9 See generally Companies Act 2014, Part 8 dealing with Receivers and Part 11 dealing with ensuring that the examinership reiterated but tempered with Liquidations. See supra n. 1 Chapters 4-7. See also FOR THOSE process is operated fairly. This experience. In Traffic Group,19 Picarda: The Law of Receivers, Managers and Administrators (4th Edition) (Bloomsbury, 2006). CONSIDERING observation sounds a note of Clarke J. stated the original aims 10 Re Atlantic Magnetics Ltd [1993] 2 IR 561; Re caution regarding the options of examinership as facilitating the Holidair Ltd [1994] 1 IR 416. IMPLEMENTATION available in the Directive to adopt continuation of the enterprise 11 Re Atlantic Magnetics Ltd, p. 578. This observation is cited with approval by Finlay CJ in the Supreme OF THE a rescue process, which does not “for the benefit of the economy as a Court in Re Holidair Ltd, p. 439. include the supervision of a court whole and, of equal, or indeed 12 Companies (Amendment) Act 1999. All of these DIRECTIVE provisions are now included in the Companies Act or administrative authority. That greater, importance to enable as 2014, Part 10. Sections 524 and 525 allow the said, the Directive does not many as possible of the jobs which examiner to exercise a power to repudiate certain kinds of contracts and terms of contracts. Before envisage that this option is may be at stake in such enterprise 1999, the examiner could repudiate contracts available where cram-down to be maintained”. entered into by the company where the performance of the contract would be detrimental provisions are operated and as However, it was also stated to the survival of the company. After 1999, the described, the examinership that examinership was “not express power to repudiate was confined to contracts entered into during the period of the process includes cross-class and designed to help shareholders examinership. However, the examiner still has the intra class cram-down provisions. whose investment has proved to be power to repudiate particular types of contracts which might prohibit the exercise of the right to ” In Vantive Holdings, objecting unsuccessful. It is to seek to save borrow or create additional charges. creditors based their arguments on the enterprise and jobs.” 13 Idem. A practice had emerged whereby borrowing to fund the rescue was certified as expenses, but this the threshold test which includes A similar observation was also practise stopped, after changes made in the 1999 an assessment of whether there is made by the same judge, who is Act regarding priority of costs and following cases such as Re UMP Dairies Ltd. [2009] IEHC 34. See a ‘reasonable prospect of survival’ now the Chief Justice, in Re further Lynch Marshall and O’ Ferrall, supra n. 1. of the entity. The court’s refusal to Vantive Holdings. And similarly, 14 Companies (Amendment) Act 1999. allow the appointment of an in the later case of McInerney, it 15 Re Vantive Holdings [2009] IEHC 384; [2009] IESC examiner was extremely was observed by the Supreme 66. Re McInerney Homes Ltd [2011] IESC 31. 16 Supra n. 15 in the High Court judgement. 20 significant, not only in relation to Court that the legislation is 17 Under s. 541 of the Companies Act 2014 which the fate of that large construction aimed at rescuing ‘fundamentally effectively re-enacts previous legislation, the court shall not confirm any proposals unless— enterprise, but also in relation to sound businesses… in a manner “(a) at least one class of creditors whose interests or the recognition of the fact that the that is not unfair to any party’.
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