by Joe O'Malley , Jeremy Erwin, Pamela Fitzpatrick August-16-2022 in Commercial & Business, Corporate Governance, Corporate
The European Union (Preventive Restructuring) Regulations 2022 (the “Regulations”) were signed into law on Friday, 29 July 2022 by the Minister for Enterprise, Trade and Employment. The purpose of the Regulations is to give effect to the mandatory articles of Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (the “Preventive Restructuring Directive”).
The Regulations amend certain provisions of the Companies Act 2014 (the “2014 Act”) relating to examinerships in order to transpose requirements of the Preventative Restructuring Directive not already provided for in Irish law. The amendments to the 2014 Act apply with immediate effect to all examinerships commenced on or after Friday, 29 July 2022.
We have considered below some of the significant changes which the Regulations have on the Irish examinership process.
Impaired creditors will not be counted for proposal voting
The Regulations introduce a new section 534(3B) which provides that before the court can sanction a scheme of arrangement, it must be satisfied that:
- a majority of the voting classes of creditors whose interests or claims would be impaired by the scheme of arrangement have accepted them, provided that at least one of those creditor classes is a class of secured creditors or is senior to the class of ordinary unsecured creditors (e.g. creditors whose claims are afforded preferential status pursuant to statute); or
- where the condition prescribed in (i) above has not been satisfied, at least one voting class of creditor whose interest would be impaired by the scheme of arrangement and who would be an "in the money creditor" in a liquidation has voted in favour of the scheme of arrangement.
Previously, a scheme of arrangement had to be accepted by at least one voting class of impaired creditors before the jurisdiction of the court would be engaged to consider it. This change to the legislation may cause difficulties in practice and as a consequence, certain schemes of arrangement that would in the past have been sanctioned by the court, may not pass the voting stage.
Notice of Meetings and Proposals
In accordance with the new section 534(2)(ii)(aa), the examiner must ensure that every member or class of creditor whose interests or claims will be impaired by the proposals will be invited to attend the meeting convened to consider the proposals for a compromise or scheme of arrangement. This is a significant remove from how the examinership process previously operated under Irish law.
The Regulations also provide that certain creditors or classes of creditors whose interests or claims will not be impaired by a proposal put forward by the examiner, will not have any voting rights in the adoption of any such proposal. In other words, the votes of creditors who would not receive a dividend if the company was to move into liquidation, do not count.
Restrictions on certain contracts during examinership
The Regulations introduce a new section 520(A) which prevents creditors from taking certain actions relating to the performance of contracts due to the fact that a company is undergoing the examinership process and/or deemed unable to pay its debts. The restrictions include terminating a contract, withholding the performance of a contract, or accelerating the performance of a contract.
It is worth noting that the restrictions provided for in the new section 520(A) apply despite any contractual clause to the contrary.
The Regulations amend a number of provisions in the 2014 Act in order to introduce the “best-interests-of -creditors test”. The Regulations do not define the best-interests-of -creditors test but it is noted within the Regulations that the terms used in the Preventive Restructuring Directive and in Part 10 of the 2014 Act shall have the meaning as set out in the Preventive Restructuring Directive.
The Preventive Restructuring Directive defines the “best-interests-of-creditors test” as “a test that is satisfied if no dissenting creditor would be worse off under a restructuring plan than such a creditor would be if the normal ranking of liquidation priorities under national law were applied, either in the event of liquidation, whether piecemeal or by sale as a going concern, or in the event of the next-best-alternative scenario if the restructuring plan were not confirmed”.
Experience of examiner to be considered by Court in cases with cross-border element
The Regulations introduce a new section 509(2) which provides that the Court shall not make an order appointing an examiner unless it is satisfied that there is a reasonable prospect of the survival of the company and that the individual to be appointed as examiner has, in cases including cross-border elements, sufficient experience and expertise to perform the role. It is worth noting that the Regulations do not set out the basis upon which a Court should assess the experience and expertise of an individual examiner.
The Regulations amend section 520 of the 2014 Act by introducing a new subsection (5A) which provides that notwithstanding the restrictions set out in section 520(4) and 520(5), employees can commence or advance certain actions or proceedings falling within section 520(4) despite the fact that the company is in examinership.
The Regulations transpose the mandatory articles of the Preventative Restructuring Directive only. The optional articles are set to be considered as part of a wider review of the examinership procedure at a later stage.
Since its inception in 1990, the examinership process has proven to be extremely effective in the restructuring of corporate entities. In particular, it has been used very effectively in recent years to restructure large multinational companies and to effect cross-border restructurings. It is hoped that the effect of the changes imposed by the Regulations will have a positive impact on an already successful examinership regime in Ireland.Back to Full News
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About the Authors
Joe is Managing Partner and Head of the Commercial Litigation & Dispute Resolution team at Hayes solicitors. He handles a wide variety of commercial disputes involving high value claims, complex issues and voluminous data for financial institutions and corporate clients.
Jeremy specialises in insolvency, commercial litigation and dispute resolution, acting for a variety of companies and financial institutions in contract law cases, enforcement and recovery actions and in high value complex Commercial Court proceedings. Jeremy also specialises in intellectual property matters, including advising on registration and protection of trade marks and related rights and on trade mark disputes.
Pamela is a senior associate solicitor in the Commercial and Business team at Hayes solicitors. She specialises in commercial litigation and dispute resolution acting for financial institutions, private equity funds, private companies and individuals in a variety of matters including enforcement and recovery actions, landlord and tenant disputes and general litigation cases. Pamela also provides advice on a wide range of commercial and business law matters, including data protection law and the review and drafting of commercial contracts.