In July 2022 the European Union (Preventive Restructuring) Regulations 2022 (the Regulations) were signed by the Minister for Enterprise, Trade and Employment.
The Regulations implement European Union Directive (EU) 2019/1023 (the Directive), in relation to corporate insolvency and preventative restructuring frameworks. The goal of the Directive is to ensure a minimum level of harmonisation of corporate insolvency law across the European Union. Companies that are in financial difficulties, but have a realistic prospect of survival, will be provided with access to restructuring frameworks that will enable them to continue to operate.
In Ireland, Examinership is perhaps the most well-known and utilised corporate restructuring process. It is designed to save the company and the business of a company which is, or is about to be unable to pay its debts as they fall due. Whilst the Examinership process was generally aligned with the Directive, the Regulations have amended the process.
This note outlines the main amendments to the Examinership process arising from the Regulations.
Cross-class cram-down
Examinership has always allowed a cross-class cram-down of debt provided that one class of creditors approves of the scheme of arrangement. This provided a strong motivation for any creditor, who would likely receive no return on the liquidation of the company but would receive a dividend in the scheme of arrangement, to vote in favour of the scheme of arrangement. The Regulations amend this provision so that the restructuring proposals must have the approval of a class of creditors which would receive a payment in a liquidation of the company, known as 'in the money' creditors. This means that, in preparing the restructuring proposals, careful consideration must be given to the potential liquidation return to all creditors. In some instances, it may no longer be possible for a company to successfully obtain confirmation by the Court of a scheme of arrangement without the agreement of the preferential creditors of the company.
Twelve-month protection period
The Regulations provide that a company can get Court protection from its creditors for a maximum period of twelve months.
Best-interest-of-creditors test
The independent expert’s report required in an Examinership and provided at the time of seeking court protection must now include a view on whether the best-interest-of-creditors test is met, as part of the consideration of whether the company has a realistic prospect of survival. The independent expert's report has been a valuable tool in the Examinership process. It provides an expert third party analysis of the prospects of the company. The inclusion of the best-interest-of-creditors test in the independent expert report will provide further impartial information to a Court when considering the application to enter the Examinership process. Although the level of detail for the best-interest-of-creditors test is not prescribed in the Regulations, it should nonetheless assist the Court in its determination of the application for the proposed Examinership process
No protection from employee claims
One of the advantages of the Examinership process is the protection provided to the company from proceedings being brought by its creditors. The Regulations now provide that employee claims are excluded from the stay, ensuring that the rights of employees are actionable irrespective of the Examinership process.
Conclusion
While some of the practicalities of the Regulations will require further consideration in due course, the Regulations will allow companies in financial difficulty with a realistic prospect of survival to continue to utilise the process while also enhancing the interests of other stakeholders such as creditors and employees of the company.
August 2022
This information provides a summary of the subject matter only. It should not be acted on without first seeking professional advice.
For more information, please contact Simon Murphy or your usual contact in the Insolvency & Corporate Restructuring team.
