Friday 28 November 2014

Small firms need more than the promise of change

Neil Keenan

Published 24/11/2012 | 05:00

The announcement by Minister Richard Bruton that small companies in difficulty will be able to apply to the less expensive Circuit Court for the appointment of an examiner is a welcome development, but does not go far enough and may not come quickly enough to give SMEs the legal tools they need to effectively restructure.

It is clear that up to now the examinership process has not been a viable option for most companies. According to Insolvencyjournal.ie, insolvencies averaged 1,500 in each of the last three years, but there were only 16 examinerships in 2010 and 2011, and 21 so far in 2012.

Most of these related to large organisations. The examinership process was introduced in 1990 in response to the difficulties in the Goodman group.

This process differs from similar schemes in some other jurisdictions in that there is a very high level of judicial involvement in the process. This is good for lawyers and accountants but has put it out of reach for most companies.

While figures are not publicly available, it is believed that the costs of an examinership in most cases would run to at least €100,000.

We await the detail of the new legislation. We know that it will be available to companies that can satisfy two of the three tests of: a balance sheet total of less than €4.4m; turnover of less than €8.8m and less than 50 employees.

I would hope that as well as making the process available in the Circuit Court that it will also introduce a more streamlined process.

One concern is that it is proposed that the change will be included in the new Companies Act, which is unlikely to be enacted before the end of 2013 at the earliest.

I would suggest that the change in the examinership law should be enacted earlier. I also believe there should be a non-judicial debt settlement arrangement for SMEs similar to the debt settlement arrangements that are proposed for individuals in the Personal Insolvency Bill.

This procedure is available in the UK as a Company Voluntary Arrangement and appears to work well. The Law Society has made a submission to Government suggesting this approach.

Given that we have now endured over four years of recession, the change in the examinership regime proposed is a somewhat limited and belated response to the crisis in which a lot of SMEs find themselves. A more radical and urgent approach is required.

Neil Keenan is head of Corporate at LKG Ballagh Solicitors, and is president of the Dun Laoghaire Rathdown Chamber of Commerce

Irish Independent

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