Examinership, Receivership and Liquidation in Ireland

The gift of the Irish economy has triggered a veritable increase in the figure of speech of companies in Ireland which ar world deemed insolvent and which be no longer in a coif to continue operating as viable entities. This has caused the companies directors, creditors and sh argonbe arrs to seek remedies available on a lower floor Irish law. The law in Ireland regarding companies in financial difficulties was pilotly forget me drug egress by the Companies subprogram 1963, which was amended in 1990, and indeed again in 1999.All gather entities must(prenominal)(prenominal) adhere to the lawmaking set kayoed low the Act and their mortal memorandum of association and denominations of association, which together live the constitution of a go with. The principal remedies for traffic with insolvent companies be 1. Examinership 2. Receivership 3. Liquidation. 1. The concept of testership was introduced into Irish law by the Companies (Amendment) Act 1990. This o rdinance was enacted in install to provide companies which were in financial difficulties with the materialise of rec everyplaceing and at that placeby avoiding liquidation.An inspectorship is where the judiciary places a ships comp each(prenominal) below its protection to enable a address official tester to assess the some wizal offsprings of a participation and consider whether it is loose of survival, and if so, puts beforehand proposals that ordain facilitate that duration of furrow. The motivation behind the creation of this statute law was the pr level(p)tion of the collapse of the Goodman Group. The aim of this legislation was to avoid liquidation of companies with a chance of recovering from financial difficulties.Forde and Kennedy opine that the con margininous objective and consequence of the protection created by this legislation is to provide the social club or companies in question with extensive exemption against its creditors and against claims being make against it. McCormack in his article Control and Corporate Rescue believes that this role was created as a response to ever-changing political and business organization dynamics in the l990s. The telephone manslayership model was seen as being overly creditor centred and as non being sufficiently responsive to the concerns of other stakeholders.The feeling at the time, McCormack opined, was that banks had pushed companies unnecessarily into insolvency by being unduly precipitate in the accusement of recipients. The original legislation has been criticised in numerous respects, and so has been amended signifi tin skunktly by the CA 1999. Finlay CJ in the unconditional Court in Re Holidair Ltd, ack presentlyledged the shortcomings of the legislation and held that it is captivate to approach the construction of any sections in CA 1990 on the basis that the devil objectives of the legislature were to provide a mean of protection for a guild and that a keep follow should be continued as a breathing appear concern.The legislation was being used as a experience attempt to save companies which were in qualified of salvation. As John ODonnell put it in his article Nursing the Corporate persevering Examinership and Certification under the Companies Act, 1990, for many, it has been a execrable experience to learn that the Act is designed to help cure the sick and posterior non raise the dead. Keane notes that the granting of the examiner is discretionary. A act of law whitethorn appoint an examiner where it appears that a) A keep political party is or is likely to be otiose to pay its debts (b) No issue subsists for the turn-up of the caller-out (c) No order has been made for the spin-up of the family. Because of the effects of an examiner on a company, one should not be appointive without a real prospect of survival. Lardner J in Re Atlantic magnetics Ltd advocated a strict test for sound prospect of survival. He was overruled by the Supreme Court, in favour of a requirement of some prospect of survival.Prior to the rescript of CA 1990, the leading chest of drawers on the test for the conflict of an examiner was that SC stopping point in Re Atlantic Magnetics Ltd. The statutory revision of percentage 2. 2 has effectively turn that ending. The foregoing views be supported by the decision of the amply Court in Re Tuskar Resources plc, which was the first written decision on the appointment of an examiner since the changes completed by CA 1999 were commenced. McCracken J began by analysing the changes effected to the test for the appointment.He said the mod test was more than in holding with the decision of Lardner J in the High Court than with the decision in the Supreme Court In re Atlantic MagneticFinlay CJ also stated that there cannot be an shipment of proof on a petitioner to establish as matter of probability that the company is capable of surviving as a going concern. It see ms to me that this is no longer the position under the Act of 1999 by reason of the language of the new sub-s 2(2). He refused to appoint an examiner as the petitioner had failed to discharge the onus of proof that there was a apt prospect of the survival of the company.Although on the undivided petitions to gravel an Examiner appointed must be move overed to the High Court, the HC may remit the matter to the Circuit Court under CA1990 atom 3. 9 where it appears that the total liabilities of the company, do not exceed 317,434. For the petition to be approved, the CA 1990 required a petition to imbibe evidence of possibility of salvation upright no detailed analysis of the companys mail was required. This is another critique of that Act. The petition to go for an examiner appointed and the grounding affidavit must be made uberrimae fides, that is, in the ut near of superb faith.What was first decided by Costello J in Re Wogans (Drogheda) Ltd has without delay been w edded statutory force by division 4a CA 1990. Where it is sight that the court of justice has been misled, the full(a) lotion pass on be tainted. If this is discovered early in the proceedings, the examiner leave alone be discharged where the overleap of straightforward faith is sufficiently serious. However, a lack of candour and good faith leave alone not always result in a refusal to confirm an examiners proposals, as seem in Re Selukwe Ltd. There be no fact(a) qualification requirements for an examiner. They cant have been an officer of the company within the shoemakers last 12 months.McCracken J held in Re Tuskar Resources plc that there was no bar on the person who provides the independent persons overcompensate from acting as examiner. The person appointed is entitled to court-fixed remuneration and to costs. He can employ staff to care or may use company staff. character 10 CA 1990 provides that any liabilities incurred during the protection period are dee med to be legit examiner expenses. These liabilities would include new borrowing. Forde and Kennedy condone that the reason why the examiner may certify liabilities is that there may other be a danger that the companys survival as a going oncern may be disfavourd. class 29 CA 1990 gave these liabilities and expenses priority over creditors where a turning away of arrangement was worn up or a convoluted up ensued. This provision was one of the almost criticised. It was deemed to subvert the whole lending process, as secured creditors lost priority. This had the potential to severely prejudice these creditors should examinership fail. Prior to the enactment of the 1999 Act, the work of the examiner was to deportment an examination of the affairs of the company and report the results to the court within a specified period and to later present proposals and schemes of arrangement.Since the 1999 Act, that report is effectively replaced by the report of the independent accountant which must now accompany the petition. Accordingly, the indebtedness of the examiner now is (a) To formulate proposals for a compromise or scheme of arrangement (b) To carry out such other duties as the court may direct him to carry out. The examiner must report to the court within 35 days informing then of any schemes formulated. If the court is then not satisfied, it can order the company be annoy up as per Section 22 CA 1999. The examiner must meet with creditors and members to devise schemes of arrangement.The members and creditors are classed for the purpose of voting on schemes and these schemes are deemed to be accepted if the majority right to vote in favour from each class. Various classes can vote on the proposals, including the Revenue, etc. When these proposals go to the court, any creditor or member whose chases are impaired may be heard. If a party who was completely unaware of the proposed scheme can show that the examiner knew of his beence but failed to take r easonable stairs to appraise him of the situation, he may by chance have a right of legal action against the examiner for alter.The court impart not approve the proposals unless at least one class of creditors impaired by the proposals vote in their favour. As to the actual reason of the proposals, the only requirement regarding the proposals intrinsic merits are that of equality within classes. Proposals must be fair and equitable and not below the belt prejudicial. The court may propose modifications to schemes and these must be voted on if significant. 2. Receivership arises in the condition of secured debenture bond holders and provides a framework in which they may act so as to enforce their security interest.Forde and Kennedy observe that at times recipient roleship is used not solely as a means of reimbursing creditors but more as a spin for reorganising insolvent companies, so as to redeem their viable parts for the advance of those involved. Courtney notes that the term derives from the Latin recipiere to take. The receiver will go to the company and take guarantee of those assets subject to the charge. They can then incarcerate of those assets and pay off the principal and interest due to the debenture holder.Receiverships involve two distinct bloods as per Barr J in Bula Ltd v Crowley First, that between the appointing mortgagee and the receiver which relates to the fundamental objective of the receivershipThe second relationship is that between the receiver and third parties arising out of the receivership The receiver is usually appointed by virtue of the debenture. The validity of the appointment of a receiver is dependent upon compliance with the legal injury contained in the debenture and the capacity of the company and authority of its officers to create the deb ab initio, that is, from the beginning.Courtney states that a creditor owes no special duty to a company in deciding whether or not to appoint a receiver. The fundame ntal issue for the debenture holder is whether or not the appointment will further their interests. However, where the appointment will not advance these interests, the appointment may be said to have been made in bad faith. The only qualifications that the law requires of receivers are negative, i. e. real persons are barred from comely receivers, such as undischarged bankrupts and persons connected to or related to persons within the company, as per Section 170 CA 1990.In chic Finance Co Ltd the court held that a companys secretary was undesirable to act as that companys receiver. A receiver appointed by debenture can resign with notice. The court also possesses an inherent power to appoint a receiver on cover by a debenture holder. This occurs in instances where the debenture doesnt provide for an appointment in a particular situation which has arisen. A receiver appointed by the court has the status of an officer of the court and can only resign with the authority of the c ourt.Ellis noted that receivers, irrespective of the method of their appointment, are regarded as being in a fiduciary relationship with those who appointed them. A receiver is normally deemed to be the agent of the company by virtue of his appointment however, the receivers primary duty is to the debenture holder. The receiver owes a fiduciary duty to the debenture holder and must conduct his receivership in good faith. The receiver is credible to the debenture holder in damages if he is negligent.The receiver is liable to the company where he is negligent in the change of any of the companys assets. Section 172 CA 1990 states that a receiver, in merchandising holding of a company, shall exercise all reasonable care to obtain the silk hat price reasonably obtainable for the property at the time of the sale. This gave statutory effect to the law in Ireland that a receiver should be required to assure that he got the best price for an asset, even if a much smaller magnetic cor e would realise his security, as accepted in Ireland in Lambert v Donnelly and McGowan v Gannon.It was observed by McCracken J in Ruby Property Company Ltd that this is simply a statutory acknowledgement of the position at roughhewn law. A receiver cant be appointed after appointment of an examiner. If appointed in the 3 days prior to examiner appointment, he may be tenacious to cease acting. 3. Liquidation terminates a companys existence and distributes its assets in a preordained way. Carrie Jane Canniffe Restraining a Creditors Winding up entreaty The position since Truck and Machinery Sales Ltd v Marubeni Komatsu Ltd. , proffers the pilfering up process can be said to mark the formalise beginning of a companys end. There are two main forms of lead up (a) By court order (b) Voluntary. A voluntary winding up can be either a members winding up or a creditors winding up. Ussher observes that the only grounds upon which a company may be wound up by the court are stated in Sect ion 213 of the Companies Act 1963. Two different types of grounds exist for the winding up of a company by the courts, adjectival and solid.Three different procedural grounds exist (a) The company has contumacious by special resolution to wind up the company. It was held in the slick of Re Galway and Salthill Tramway Co. , that the board of directors may not cause it to do so without the benefit of an authorising or ratifying resolution in customary meeting, or specific authority in the articles. (b) The company does not commence its business within a year from its incorporation or suspends its business for a whole year. Courtney notes this ground is rarely relied upon since only contributories, the Co itself and creditors may rely on it. c) The number of members is reduced, in the case of a personal company, below two, or, in the case of any other company below seven. The most important grounds however, are those of the substantive grounds. Where (a) The Company is unable to pay its debts. The CA 1990 provides that a company shall be deemed to be unable to pay its debts in certain circumstances (a. 1) A creditor has not been give a debt of 1000 or more within three weeks after demanding it in writing (a. 2) A judgment is ungratified or (a. 3) It is proved to the satisfaction of the court that the company is unable to pay its debts.Keane comments that in deciding whether it has been proved that the company is unable to pay its debts, the court will in general act on evidence that a creditor has repeatedly use for a defrayment without success. If, however, the company can show that there is a bona fide dispute as to the particular debt claimed, the order will not be made. Alison Keirse Winding up petitions Practical application of the Stonegate test observed that the decision in Re Pageboy Couriers Ltd adopted the decision of Stonegate Securities Limited v Gregory establishing this method of defeating a creditors petition to wind up a company.However, as Courtney notes it is one thing to successfully dispute the bona fides of a debt at the hear of a petition even where successful, the company is exposed to a glare of adverse publicity wherein its solvency is questioned. The first Irish case to consider an application for injunction comforter against the advertisement of a petition was Clandown Ltd v Davis. Morris J held that the precise amount of the debt had to be declared before the court could order a winding up. Thus Morris J granted the injunction to restrain the result of the petition.One result of this decision is to reinforce the article of faith that the courts will not permit themselves to be used as a method of debt collection. Howard Linnane Oppression of Members Section 205 Companies Act, 1963 proffers that under the CA 1963 the court has jurisdiction to order the winding up of a company where it is just and equitable to do so. Ussher proffers that in many cases such grounds are invoked where there is a complet e dead end between the shareholders and the companys activities to the prejudice both of the member and the creditors.The leading case is Re Yenidje Tobacco Co, the principle of which was applied in Re Irish phaeton Promotions. Kenny J wound up a company in which the two directors could not meet without the risk of unruly scenes, and the business of the company could not be conducted. In conclusion, while a companys inability to pay its debts is the most common reason for the winding up of a company, it is not determinative. A court will only wind up a company where it is just an equitable to do so.Ultimately the appropriate remedy to be industrious will be dependent upon the effect of difficulty the company finds itself. There is of pedigree some comfort for both companies and creditors same that the Irish statutory framework at least contemplates solutions which draw back from the conclusiveness of ultimate dissolution of a company and facilitates interested parties a way fo rward through these recessionary times mayhap even to the benefit of all parties concerned.