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Examinership begins to lose its lustre
20 March 2009
In existence for just 19 years, the examinership process is still a relatively youthful addition to the suite of options available to a struggling Irish firm. But with the economic climate driving more and more companies to seek court protection and with fewer emerging to a brighter view, its detractors are queuing up to suggest it has outlived its usefulness.
Examinerships were introduced in 1990 to give companies facing liquidation a chance of survival. By appointing an examiner, the court allows an ailing firm a period of 70 days protection from its creditors. During this time, the examiner looks to restructure the business and seek new investment, while putting together a scheme of arrangement to pay creditors.
For many years, the process worked well with many firms securing new funding and returning to profitability following a brush with the examiner. However, recent research by accounting firm Grant Thornton shows less than one-third of companies that entered examinership in the last two years remain in business. This is a sharp decline from previous success rates of over 90 per cent.
Now the courts are turning down an increasing number of petitions for examinership. Michael Quinn of William Fry Solicitors has highlighted how the judiciary is taking a harder line with applications. “In the case of an application for examinership the courts are applying a very stringent examination of the accounts in order to ensure that the business has a reasonable prospect of survival.”
Earlier this year, Mr Justice Peter Kelly hit out at the examinership process after adjudicating on a failed attempt to rejuvenate pottery firm National Crafts Ltd, suggesting it was putting companies “on life support with no prospect of survival”. No new investment had been found to revive the company and Mr Justice Kelly remarked that investors were now “as scarce as hen’s teeth”.
Last month Ms Justice Mary Finlay Geoghegan warned that any extension to the examinership period for the Golden Discs Group “would have to be fully justified”.
And there were indications during the Supreme Court case of Gallium Ltd that there was growing frustration at the way independent accountant reports were being filed for examinership hearings on an almost formulaic basis.
Barry Cahir of William Fry Solicitors recently cautioned that examinerships almost inevitably damaged shareholder value. “It should be remembered that in the event of the appointment of an examiner it is very probable that the shareholder value is eliminated. There are a number of other options including workouts, trading through the difficulties, schemes of arrangement or even receivership which may be more favourable than an examiner.”
Meanwhile, Grant Thornton has petitioned the Company Law Review Group for new options for failing businesses.
Some experts believe the most favourable option is already available – receivership. A receiver typically manages a stricken company in a bid to secure its assets on behalf of creditors, allowing it to trade as normal.
Nicholas Comyn, of Ronan Daly Jermyn solicitors believes this is the way forward. “Receivership will become the big thing. I believe that examinership is coming to an end, because even with a reasonable prospect of survival, unless somebody has lined up a source of cash flow, we can’t put a rescue package through the courts.”
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