Examinership ‘Lite’ – A positive option for insolvent SME Companies

The new Examinership legislation, sometimes referred to as Examinership ‘Lite’ to reflect its lower associated costs and its SME focus, was signed into law on 24th December 2013, under the title of the ‘Companies (Miscellaneous Provisions) Act, 2013’. It is hoped that Examinership ‘Lite’ will provide an SME-friendly Examinership regime, which will operate with the assistance of the Circuit Court, as opposed to the High Court, which has been the primary forum for Examinerships to date. Under the right conditions Examinership is a highly effective corporate restructuring tool, but to date SME Companies have struggled to avail of the process, possibly because of the onerous initial High Court legal costs. The welcome arrival of SME friendly Examinership legislation is a ‘game changer’ in that regard.

Prior to this most recent Act being signed into law, there was no option for a company to apply directly to the Circuit Court for the appointment of an examiner, although the High Court could choose to remit the matter to the Circuit Court, where it was satisfied that the total liabilities of the company did not exceed €317,500. This left struggling Companies in the position of having to make their initial Examinership application to the High Court, which seems to have been one hurdle too far for many smaller companies, thus leading to a very low take up of Examinership as a restructuring option. Historical data would suggest that less than 2% of all Corporate Insolvencies took the Examinership option with 98% of Corporate Insolvencies falling into Liquidation or Receivership. (stats from www.insolvencyjournal.ie )

The new Examinership Act prescribes that the Circuit Court has jurisdiction where the applicant is a “small company”.

Two or more of the following conditions must be satisfied in order to meet the definition of a “small company”:

• The turnover does not exceed €8.8 million;
• The balance sheet total does not exceed €4.4 million;
• The average number of employees in the company does not exceed 50.

It is hoped that the new legislation will finally open up Examinership as a viable restructuring solution to smaller companies, where liquidation or receivership would otherwise be inevitable. Importantly, the Act enables a “small company” to elect to apply directly to the Circuit Court (rather than the High Court) for the appointment of an examiner. The result of applying to the Circuit Court is reduced legal and professional costs for the applicant.

In summary, this legislation should be welcomed by the SME industry and should help tackle legacy SME debt in Ireland, which will in turn facilitate SME companies returning to full viability.

for more information on Examinership log on to www.kavanaghfennell.ie.