Companies Bill is welcome but will it achieve its aim?
THE Government has recently published the Companies (Miscellaneous Provisions) Bill 2013 which will enable certain companies to seek examinership protection from creditors through the Circuit Court.
At present applications must first be made to the High Court for such protection and may then be sent to the Circuit Court if the company's total liabilities are less than €317,434.52. To my knowledge, this has never been done.
The Bill provides that an applicant can choose to apply to the Circuit Court rather than the High Court if the company is a "small" company. The rationale for this is stated to be to reduce the cost of examinerships to make them more accessible to SMEs.
A "small" company is one that has at least two of the following – turnover of no more than €8.8m; balance sheet total of no more than €4.4m; average number of employees no more than 50.
For a "small" company, the applicant seeking the protection may opt to apply to the Circuit Court rather than the High Court. However, sometimes the applicant is a creditor of the company and may not know whether the company concerned qualifies as a "small" company, in which case they may have to apply to the High Court.
The only up-front costs associated with seeking examinership protection are the costs of an independent accountant in preparing a report on the company's viability and the application papers, prepared by the applicant's lawyers. The Bill makes no change to the content of this report or to the content of the application papers, therefore, the same level of work is required to be done whether the application is to be made in the Circuit or High Court.
The real cost of examinership is the work done by the Examiner and by the company once the examiner is appointed. The variables include the size of the company, the number of creditors, creditor attitude – whether the case is overseen by the Circuit Court rather than the High Court does not affect the level of work to be done. In a successful examinership, the Examiner's fees, costs and expenses are paid out of the investment, and so, will be subject to a deal being struck between the Examiner and the investor. It is only if an examinership fails that the Examiner's fees, costs and expenses fall to be paid out of the subsequent liquidation or receivership of the company. Usually, it is the company's bank that will in effect bear this cost.
Currently, where an examinership fails, the High Court will determine the level of the Examiner's fees, costs and expenses. The High Court has already made significant inroads into costs by capping the hourly rate that can be charged by the Examiner. Recently the High Court has required the directors of an applicant company to essentially pre-pay the fees so that they are not borne by the company's creditors. The Court did not prescribe the figure and left it to the examiner and directors to agree the amount. This arrangement meant both the company and the examiner negotiated a figure they could live with.
A further possible obstacle to the intended costs-saving will be the Court of Appeal, once established. If an examinership commences in the Circuit Court any order made by that Court could be appealed to the High Court and that court's decision then further appealed to the Court of Appeal, and possibly to the Supreme Court. Therefore, there will be an additional right of appeal if an examinership commences in the Circuit Court. There are many examples of examinership cases going to the Supreme Court, and to that court on a number of occasions in the same case. Having an additional appeal option may well lead to an overall increase in costs in some cases. I do not believe that this has been considered in the preparation of the Bill.
While the stated purpose of the Bill is welcome, I am not convinced the Bill as drafted will achieve its stated aim. The more fundamental issue for companies in difficulty is access to finance, with new funding being a pre-requisite for any successful examinership and usually by far the most significant "cost" in an examinership. The Bill is a mere fig leaf that does nothing to address this more pressing need of SMEs.
Gavin Simons is a partner in AMOSS Solicitors, specialising in corporate restructuring and insolvency and has acted in many examinerships since 2001.