Throughout the course of business, financial circumstances can frequently conspire to render a business no longer economically viable or to make the business viable in circumstances where one correction to its balance sheet could result in the business surviving.
If a business is insolvent for genuine trading conditions and the business operates as a company, then the company can file for insolvency or liquidation, and this is a process that is handled by the company’s Accountant. Business owners should be aware that the obligations of Directors in any Limited Liability Company (and ultimately to the creditors of that company) is to act bona fides and in the best interests of the Company at all times. Where a Company has acted with propriety but is insolvent for the reason of genuine economic conditions, then the limited liability protection of the Company will protect the Directors and Shareholders from any personal exposure.
Where, however, an Insolvent Business has resulted from reckless and fraudulent trading of the Directors, then this may result in a number of consequences, none the least of which is an action by the creditors against the Directors personally for such improper trading. In addition, Directors who breach the code of conduct and the obligations and responsibilities of Directors are liable to a complaint to the Office of the Director of Corporate Enforcement in Ireland. Under corporate enforcement law, the Director can make an application to the High Court to have Company Directors either “restricted” or disqualified from being directors of Companies indefinitely or for a fixed period of time. If a Director is restricted, the Court imposes minimum capital obligations on the Company for the duration that the restricted Director remains with that Company.
Where the assets of a company or business are subject to commercial finance or land purchase mortgages, typically, the business, in this case, faces the appointment of a Receiver over the assets by the Bank involved. Once appointed, the Receiver is lawfully authorised to take control of the asset and to deal with it as per the directions of the Lender.
In the instance, however, where a Company has significant overheads and large debt obligations but is otherwise a business that has a genuine prospect of survival, that business can apply for examinership protection under Irish law. This is a protection granted by the Court for a fixed period of time (typically ninety days) during which an Examiner appointed to act on behalf of the Company can agree to a scheme of arrangement with the creditors of the company for a reduction of the overall debt balance. This is typically done by way of a set percentage reduction to enable the Company to trade properly. The Company can exit examinership with a healthier balance sheet and the ability to continue trading on new and revised terms to meet the demands of a changed financial environment.
Examinership is a technical process, and the Company must meet certain criteria in order to qualify. The most important criterion is that the Examiner agrees that the Company is viable and profitable if it can reduce the burden of debt going into examinership and enable the Company to return to trade on a profitable basis. The Court will consider the report of the Examiner as to whether the business has genuine viability and, if successful, grant the protection period during which the scheme can be agreed upon with all creditors of the business.
If the criteria for examinership are not met, then the only option for the Company is insolvent liquidation.
For any enquiries in relation to examinership, please contact us, and we will be happy to meet with you to discuss the possibility of this protection for your business.