Examinership in exceptional times

Pursuant to the Companies (Miscellaneous Provisions) (COVID-19) Act 2020 (the COVID Act), “exceptional provision” to the operation of certain parts of the Companies Act 2014 (the Act) was made for a specific period of time, which period could be extended by order of the Government (the Interim Period). Yesterday, the government announced that it was extending the Interim Period until 31 December 2022.

One of the amendments to the Act made by the COVID Act, which continues in force during the Interim Period, is the extension of the maximum period to which a company can remain in examinership, during which a legal moratorium exists which prevents enforcement action being taken.

This article provides a summary overview of the examinership process and considers recent developments in this sphere. In light of the prevailing economic uncertainty, examinership is likely to become ever more relevant to companies and their directors across Ireland and beyond over the coming months. The further extension of the Interim Period is to be welcomed in these exceptional times.

An overview

Examinership is an Irish law statutory scheme set out in the Act for the rescue of an insolvent company or group of companies which, but for their level of indebtedness, have a reasonable prospect of survival as a going concern. It is analogous to the US Chapter 11 process and similar to the restructuring plan in the UK.

Examinership is a debtor in possession process and in the absence of a court order to the contrary, the directors of the company retain control of the company during the process.  

An examiner, who is an independent office holder, is appointed by the court on foot of a nomination made to the court by way of a petition (usually but not always made by the debtor company). Once appointed by the court, the examiner is charged with trying to put together a restructuring plan to save the company which usually comprises three primary components (i) new investment, (ii) a cross-class creditor cram down and (iii) a legal moratorium which prevents enforcement action being taken during the period of examinership.

Prior to the commencement of the COVID Act, the maximum period of time during which a company could remain in examinership was 100 days. As a result of the COVID Act and the subsequent extensions of the Interim Period, a company may, in “exceptional circumstances”¹, remain in examinership for up to 150 days after the presentation of the petition.

One notable aspect of examinership is the requirement that only a simple majority in number and value of one class of impaired creditors need to vote in favour of the scheme of arrangement (ie the cross-class creditor cram-down) before a Court has jurisdiction to consider whether or not to sanction the scheme.  

Centre of main interests

Examinership is recognised as a main insolvency proceeding for the purposes of Regulation (EU) 2015/848. In order to avail of the examinership process, the primary debtor must have its centre of main interests (COMI) in Ireland².  

However, a related company can be brought into examinership even if it does not have its COMI in Ireland or in any other EU member state, so long as it has a “sufficient connection” to Ireland. The Irish Courts have endorsed and adopted the sufficient connection test set out in the leading decisions of the English High Court in Re Drax Holdings Ltd³ and Re Rodenstock⁴ in the context of English Part 26 schemes of arrangement.  

This position was confirmed in 2021 in Ireland as part of the examinership of Norwegian Air Shuttle ASA and several of its Irish registered subsidiaries, in relation to which DLA Piper acted for a number of high-profile creditors with the Dublin office working closely with several European and international offices across a number of jurisdictions. 

Exceptional circumstances

As already noted, the COVID Act has extended the maximum period during which a company may remain in examinership from 100 days to 150 days provided that “exceptional circumstances exist in respect of the company the subject of the application”.

The recent decision of Mr Justice O’Moore in Re Premier Periclase Limited⁵ has confirmed that, notwithstanding that the COVID Act was enacted in order to “address the inevitable adverse effects on businesses caused by a global pandemic”, so long as the Interim Period remains in place when an application to extend the protection period beyond 100 days is made, the “exceptional circumstances” which must be present in order for the Court to extend the period of protection need not be related to COVID-19.  

In delivering his judgment in Periclase, Mr Justice O’Moore commented that “the Oireachtas clearly wished to provide an extended period of court protection during any interim period should a company be adversely effected by exceptional circumstances even if these were not in themselves circumstances caused by COVID-19”. In Periclase, Mr Justice O’Moore held that the war in Ukraine and the consequent disruption to the debtor company’s operations and business amounted to “exceptional circumstances” that justified the extension of the protection period.

Financial troubles?

The prevailing market view is that based on a number of factors, including the cessation of government pandemic supports, likely interest rate increases, inflation rates and increasing geo-political uncertainty, business failures, which are at an historic low, are likely to increase in the short to medium term. 

If a company is in a financially precarious position, it is important that the directors seek professional advice as soon as possible. Examinership is a very powerful tool in the armoury of an ailing company and one which has the potential to save jobs and businesses in appropriate circumstances. The clarifications provided by the recent developments as considered above make this already attractive option even more attractive.

As a global business law firm, with over 200 dedicated restructuring lawyers across the world, DLA Piper is uniquely positioned to advise companies in relation to global and local issues. 

¹ Section 534(3A) of the Act

² Article 3.1 of Regulation (EU) 2015/848

³ [2003] EWHC 2743(Ch), [2004] 1 WLR 1049

⁴ [2011] EWHC 1104 (CH)

⁵ [2022] IEHC 217