by Matthew Austin February-08-2021 in Commercial & Business, Insolvency & Restructuring

In late 2020 the High Court ruled on a petition to appoint an examiner to the “New Look” group of clothing shops in Ireland.  The petition was opposed by several landlords of premises occupied by New Look shops.

The petition involved the Court deciding whether companies which are not insolvent at the time of the application, but which are shown to be extremely likely to become insolvent in the short to medium term, are eligible for protection under the examinership jurisdiction of the Court.  The Court was charged with deciding between differing accounts as to when the companies were likely to become insolvent.  The Court lamented the position in which it found itself in that regard but found that:

"the court's power to appoint an examiner is triggered both where a company is currently unable to pay its debts and where it is likely to be unable to pay its debts at some point in the future".

Ultimately the Court determined, based on the evidence put before it, that the Company would become insolvent at some point in the first half of 2021.  The Court was also satisfied that it had been proven that the companies had a reasonable prospect of survival.  However, in a stark demonstration of the discretion afforded to the Court in the context of examinership petitions, Mr Justice McDonald refused the petition and emphasised in particular:

  • The serious and drastic nature of examinership, particularly having regard to the impact a scheme of arrangement is likely to have on creditors of the company.
  • The need to exhaust all avenues of commercial recourse before resorting to a petition to appoint an examiner.
  • The requirement that the petitioner demonstrate that there is a real necessity to appoint an examiner at the time the petition is being put before the Court.

The emphasis placed by the Court on the requirement to demonstrate that “appropriate efforts” had been made to engage with creditors prior to embarking on a petition to appoint an examiner is striking.  Clearly this has a practical implication for all those considering an examinership petition and suggests a need to place cogent evidence before the Court setting out the steps taken to engage with creditors.  However, it places a question mark over the evidential requirements of the petitioner in circumstances where the petitioner is not the company itself, but rather one of the other entities conferred with the entitled to petition the Court to appoint an examiner e.g. a creditor.  It also raises the question of what detail will need to be placed in evidence and whether all creditors will need to be approached or merely the principal creditors of the company.

The language used by Mr Justice McDonald in this context is noteworthy:

“…there is no imminent risk that the Company will have to cease to trade even where it continues to discharge its rental obligations in full. Given these circumstances, it seems to me that, if the Company is to persuade the court to exercise its discretion in favour of the appointment of an examiner, it should be in a position to demonstrate that there is a real necessity to appoint an examiner at this point. Having regard to the impact of the appointment on creditors, this seems to me to be essential in the particular circumstances of this case.” (emphasis added)

Although couched in terms that suggest that this requirement is limited to the circumstances of the particular case, the tenor of the judgment in general is suggestive of a “necessity” test in all examinership applications, the passing of which, in some cases, will require clear evidence of extensive engagement with creditors prior to presentation of the petition to the Court.

 For further information on any of the issues raised above, please contact Matthew Austin

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