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Examinership Explained

by | Feb 25, 2014 | Commercial Litigation and Disputes, Company and Commercial Law

At present all applications for examinership must be made to the High Court.  With a view to reducing costs and providing greater accessibility for small private companies to the examinership process section 2 of the Companies (Miscellaneous Provisions) Act 2013 was enacted on 24thDecember 2013 and provides that a small to medium-sized company may apply to the Circuit Court to instigate the examinership process. Section 2 is however subject to a ministerial commencement order which has not yet been passed.

Small companies are those that satisfy two out of the following three conditions:

  1. Balance sheet not exceeding €4.4million;
  2. Turnover not exceeding €8.8million; and
  3. Number of employees not exceeding 50;

What is examinership?

Examinership is a court supervised rescue process which is designed to help companies recover from insolvency. The principal rationale behind examinership is to allow a company that is experiencing financial difficulties a period of protection from creditor action during which a third party (the Examiner) has an opportunity to examine the affairs of the company and, if there is a reasonable prospect of the survival of the company and all or part of its undertaking as a going concern, to formulate proposals for a scheme of arrangement to facilitate such survival and save the jobs of its employees.

When will a court appoint an examiner to a company?

Briefly put, if satisfied that an insolvent company and the whole or any part of its undertaking has a reasonable prospect of survival as a going concern a court may appoint an examiner. The company must prove it is unable to pay its debts at the time of the application to appoint an Examiner.  The company does not, however, need to be insolvent to fulfil the necessary criteria, a court may take account of a future event which is likely to have an adverse effect on the company’s ability to discharge its debts.

An Examiner will not be appointed where a receiver stands appointed for a continuous period of three days or more.  Furthermore, the existence of a winding-up petition does not in itself prevent the appointment of an Examiner.

How does a company go about applying to the Court to appoint an examiner?

An Examiner is appointed to a company on foot of a petition brought before the High Court*. The petition must be supported by an affidavit (a written document sworn by the applicant on oath) and must be accompanied by an independent accountant’s report.  The independent accountant’s report must put basic information before the court to show whether or not proposals for a scheme of arrangement would offer a reasonable prospect of the survival of the company and all or part of its undertaking as a going concern.

* There is provision in the Companies (Miscellaneous Provisions) Act 2013 to permit a company to apply to the Circuit Court in the circuit of the company’s registered office but at the date of writing the relevant commencement order has not been signed by the Minister for Innovation, Trade and Employment.

Practically speaking what does “court protection” mean for the Company?

The practical effect of “court protection” for a company is that the company is effectively immune from creditor action. This means the following:-

No proceedings may be taken or resolution may be made to wind up the company during the period of protection;

  1. No receiver can be appointed over secured assets of the company;
  2. No steps may be taken to pursue a guarantor of that company’s debts during the protection period; and
  3. No steps can be taken to repossess goods of the company or to enforce a judgment of a court during that timeframe.

What is a Scheme of Arrangement?

As stated an Examiner’s main function is to arrange a formal scheme of arrangement between the company and its creditors and members which will facilitate the survival of the company and the whole or part of its undertaking as a going concern.

An Examiner is obliged to prepare a report outlining proposals for a scheme of arrangement and to convene a meeting of each class (see below) of creditors and shareholders to consider same.  The Examiner is obliged to convene the said meetings within 35 days of his or her appointment however typically this timeline is extended.

A scheme of arrangement frequently involves a new investor acquiring all or substantially all of the shareholding in the company together with a write down of the company’s debt across a range of classes of creditors. In certain circumstances, third party investment is not required.

In his report, the Examiner must divide the company’s creditors and members into various classes (e.g. unsecured creditors, leasing creditors, retention of title creditors, floating chargeholders, fixed chargeholders, Revenue Commissioners, contingent creditors, etc., preferential shareholders and ordinary shareholders) and treat each class equally.

I am a creditor of a company in examinership, will I be compelled to accept a Scheme of Arrangement ?

Provided that at least one class of creditor and member (see above) votes in favour of accepting the Examiner’s proposals, the Examiner may proceed to seek court approval sanctioning his scheme of arrangement thereby making it binding on dissenting creditors and members. The voting by creditors at their meetings is by a majority in number representing a majority in value of the claims represented at that meeting. (e.g. a secured creditor of €100,000 could have 100 votes and a secured creditor of €1000 could have 1 vote)

What does the board of directors need to consider before applying for examinership?

The overarching principal of examinership is to give an insolvent company some time during which it is uninhibited by creditor action to come to a scheme of arrangement which is agreed to by a majority of creditors (voting in number and value) which would be more beneficial to them then in a winding up or liquidation situation.  If the directors doe not believe that any scheme would be accepted by a majority of a class of creditors and members (see above) the directors should not proceed to examinership as to do so would significantly reduce the funds available to creditors.

If a scheme of arrangement is not agreed to by a class of  creditors or members or approved by the Court it is important to note that the company will most likely go into liquidation.  In this scenario the costs of examinership are paid in priority to all other debts of the company, thus minimising the amount available for the creditors.  Usually costs of the examinership process are significant and this could lead to there being no funds left to pay the creditors.

What happens if the Scheme of Arrangement is approved?

The company proceeds with business as per the scheme of arrangement.

When does Court Protection end?

The date on which the scheme of arrangement is approved or disapproved, as the case may be.  If at any stage the Examiner believes that there is no prospect for the survival of the company and all or part of its undertaking as a going concern, he or she must apply to be discharged and to have court protection terminated.

What happens if the examinership process fails?

If the examinership process fails the company will most likely be placed into liquidation or the company’s secured creditors will appoint receivers to the secured assets.

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Examinership Explained”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.
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Shopping For Better Value …

by | Jul 4, 2013 | Commercial Litigation and Disputes, Commercial Property

Rent Review

Dunnes Stores is the latest commercial tenant to gain savings on a court interpretation of a rent review clause which its landlord claimed to have been “upwards only”.  On Tuesday, 14th May last, the Circuit Court granted the retail giant a 32% reduction in rent to be paid for the occupation of retail floor space on Georges Street, Dublin 2 and a 50% reduction of rent to be paid for the occupation of basement storage and office and ancillary space at the same location.

Readers may be familiar with a judgment of the High Court handed down in March of this year which had the effect of reducing the rent Bewleys Café was paying for occupying its retail outlet on Grafton Street for the five year period beginning January 2012.  In that case, the landlord, Ickendel Limited, also claimed that a rent review clause in the lease with Bewleys Café (which was dated 22nd September 1987) was “upwards only”.

The judgment in the Bewleys case is valuable to both commercial tenants and landlords as it offers an insight into a court’s approach to the interpretation of a rent review clause in a commercial lease where there is a dispute between the parties.

It is noteworthy that the judgment in the Bewleys case recognised established jurisprudence which declines to rewrite the terms of a lease simply because they are unfair to a party e.g. a tenant who is unable to pay the rent because of the economic downturn or because the tenant might go out of business as a result of rent being or becoming payable at an amount higher than market value.

The Bewleys decision also reflects the fact that the parties to a commercial lease have negotiated and agreed same at arms length, often with the benefit of legal advice and that therefore they should be bound by the terms of the lease which records that agreement. In addition, the Court emphasised that certainty is essential to the successful operation of commercial agreements and that parties to an agreement should be confident not only that the terms of a commercial agreement will withstand judicial scrutiny but also that such terms will not be rewritten by a court.

In the Bewleys case, the previous rent review which took place in 2007 fixed an annual rent of €1,463,964.   A dispute arose when the rent was being reviewed in 2012.

The rent review clause in the lease provided that the new rent on a review should be the higher of either the rent payable during the “preceding period” or the current market rent.  The question for the Court was – what period was the “preceding period”? Was it the:-

immediately preceding period i.e. the period from 2007 to 2012 in which circumstances the new rent for the period 2012 to 2017 would have remained at €1,463,964 per annum due to deflation in property prices;

or

the period beginning on the date of the lease in 1987, in which circumstances the rent for the period 2012 to 2017 would be the greater of the 1987 rent or current market rent?

The rent in 1987 was €218,000 per annum and it was submitted by counsel for Bewleys during the hearing that current market rent would be less than half the rent fixed in 2007.

Thankfully for Bewleys’ coffee consumers, the Court’s answer was based on paragraph 2 above.  The Judge did not however fix the amount of the new rent and left this to be dealt with by the parties.

It must be emphasised that whilst this case has set an important precedent, it was decided on its own facts and cannot be considered as a general rule.   The outcome of every case will depend on the wording of the particular rent review clause. It is anticipated however that many leases contain rent review clauses with similar wording to that in the Bewleys case hence the importance of that decision.  The case is currently under appeal to the Supreme Court and a final decision is awaited with great interest.
Quite apart from the dramatic effect of the decision on the commercial property market, it highlights the necessity for attention to detail when drafting commercial leases so to avoid uncertainty with consequent legal and other professional costs.

Update

Last Wednesday, 15th May 2013, the High Court found that a rent review clause in a lease made between Tanat Limited as landlord and the Medical Council as tenant was in fact an “upwards only” rent review clause.   In that case the High Court held that the clause in question should be interpreted to mean that the rent payable under the lease did not fall below the rent payable for the preceding period which rent was €820,000 per annum.  It was noted that the market rent payable under the lease was €374,100 per. annum.  This case demonstrates the importance of the actual wording of the clause and acts as a reminder that all cases will be decided on their own facts.  In cases where the wording is clear the Courts will enforce an “upwards only” rent review clause notwithstanding the hardship this may cause to a tenant.

NB:  Since the commencement of section 132 of the Land and Conveyancing Reform Act 2009 (“the 2009 Act”) on 28 February 2010, “upwards only” rent review clauses in leases created afterthat date are to be construed as meaning that rent payable following such review may be fixed at an amount which is less than, equal to or greater than the amount of rent payable immediately prior to the date on which the rent falls to be renewed.

That section means that in the post 2009 Act era, even if a rent review clause is drafted in terms similar to those contained in the Tanat/ Medical Council case, the rent may nevertheless be reduced, remain unchanged or increased.  It is not possible for the parties to contract out of the application of this section.

Food for thought, and fodder for lawyers!

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Shopping For Better Value”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.
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It could be you!

by | May 21, 2013 | Commercial Litigation and Disputes, Company and Commercial Law

Lotto Syndicate Agreements – Preparing for that big win written by Deirdre Farrell

It is not often appreciated by many lotto syndicate members  that a syndicate, whether formed with colleagues at work, acquaintances at a pub or family members and whether written or oral, is an agreement that is enforceable through the courts system. Should one member of a syndicate dispute a term of the agreement – for example a term relating to what share of the winnings that he or she is entitled – that member may be entitled to an order preventing the a lottery from paying out the prize winnings until the syndicate dispute is settled.  This could result in expensive legal proceedings and could mean that members of a syndicate would not receive their share of the winnings for a long time.  The costs of such proceedings could also have the effect of substantially depleting each member’s share of the winnings.

You may have read that the US lottery jackpot was recently won by an individual who scooped an incredible $590m!  The chance of winning this was 1 in 175 million.  Setting up a lotto syndicate however is a great way to increase one’s chances of winning lottery prizes.

It is sometimes not appreciated that there might be significant tax consequences for syndicate winners in the absence of sufficient evidence to show that a syndicate agreement did in fact exist between them.  Lottery winnings are received by syndicate winners tax free, however, gifts from individuals to others are not and are subject to capital acquisitions tax which currently stands at 33% where the gift exceeds a tax free threshold particular to the relationship between the donor and the donee.

Having a written syndicate agreement in place should also be of concern to employers where syndicates are formed amongst employees.  Disputes between employee syndicate members could lead to a breakdown in important business relationships and could lead to disruption of business with a consequent unnecessary loss to the employer.

There have been many publicised court disputes between syndicate members that could have been avoided if the agreement between the members had been reduced to writing.

Recently in March 2013, it emerged that members of a UK syndicate comprising 16 colleagues won GBP £1,000,000 in the Euromillions draw.  A dispute arose in relation to three members who did not contribute to the purchase price of the winning ticket.  History does not relate whether the remaining members of the syndicate covered the cost of the non-contributors’ share of the ticket purchase.  Notwithstanding this, the three colleagues in question argued that they were entitled to a share of the prize money.

Generally, lotto syndicate agreements provide for what happens when a member fails to contribute to a draw entered into on behalf of the syndicate.  A well drafted syndicate agreement should provide that failure by a member to contribute to the purchase price of a ticket for a certain number of consecutive draws would disentitle that member to a share of a syndicate’s win in any draw subsequent to the stipulated number of draws to which the member did not contribute.  The question also arises as to whether or not the member’s portion was paid for and by whom.  If it was paid for by the person who actually purchased the ticket, does this mean that they are also entitled to what would have been the non-contributing member’s share? There was no written lotto syndicate agreement between the members in this case however and a much publicised dispute ensued amongst the syndicate members.

The 16 individuals concerned all worked in the Driver and Vehicle Licensing Agency in Swansea where there were over 5,000 staff.  Senior Officials of the DVLA were engaged to resolve the dispute and there was major disruption of business as a result.  It was alleged that at one stage there was an altercation between a number of the syndicate member workers and that security had to be called to diffuse the tension.

It appears that the DVLA dispute may have been resolved but as the workers in question signed a confidentiality agreement, the exact outcome is unclear.  What is clear however is that the absence of a well drafted agreement resulted in very serious disruption to the business of the DVLA with inevitable knock-on cost.

As will be seen from the foregoing example, in order to ensure the seamless and immediate payment of tax-free lotto winnings to syndicate members a formal agreement setting out all of the essential terms should be  put in place and signed by all syndicate participants.  Such an agreement should include the following terms:-

  1. The date of the agreement;
  2. The appointed manager’s name – the appointed manager is responsible for creating and maintaining the syndicate agreement, collecting funds from each player, keeping a record of payments, purchasing tickets, storing the tickets safely, checking the tickets to see if the syndicate has won and dividing the winnings amongst the members;
  3. The names of the members of the group;
  4. The games and numbers to be played;
  5. Which draws will be entered i.e. the National Lottery on Wednesday, Saturday or one or both of the twice-weekly Euromillions draws or some other games;
  6. How much each member will pay per draw and when and how payment is to be made;
  7. Clarification that there is no “ownership” by a member of any particular line of numbers;
  8. How winnings will be split (for example, the manager may be entitled to an extra bonus by way of reward for assuming the responsibility of this role);
  9. What happens if a member fails to pay their contribution at any time;
  10. If the group has a big win, whether the members will agree to publicity or not;
  11. The agreement must be signed and dated by each member of the group and should be witnessed by, I suggest, a solicitor.  Copies should be given to each member and the original kept in a safe place.
Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “It could be you!”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.
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Homeowners Threatened With Legal Proceedings For Developer’s Failure To Pay Financial Contributions

by | Mar 17, 2013 | Commercial Litigation and Disputes, Public Law and Judicial Review, Residential Property

Wicklow County Council (WCC) is pursuing 24 homeowners at Meadow Brook estate in Avoca for unpaid financial contributions required by the planning permission that approved the estate development. A financial contribution is a condition in a planning permission that requires the payment of a sum calculated pursuant to that local authority’s Development Contribution Scheme.  The payment is designed to compensate the local authority for the benefit that a proposed development would gain from using the roads, services and sewerage facilities within that local authority area.

Financial contributions imposed as a condition of planning permission are generally required to be paid prior to the commencement of construction work. However, agreements can be reached between the developer and the planning authorities for phased payment of the financial contributions but they generally include a considerable upfront payment. In the past, such agreements had the effect of enabling the developer to sell properties without having to discharge the full amount of financial contributions. Serious problems have now arisen for local authorities where developers have become insolvent leaving the issue of unpaid financial contributions outstanding.

Failure to pay a financial contribution means that the planning permission has not been complied with.  Failure to comply with a condition in planning permission affords a local authority grounds to serve an enforcement notice which in some cases could lead to the demolition of a property. However, there is no express legal provision which would entitle a local authority to recover unpaid financial contributions from the developer’s successor in title.  Planning legislation is unclear as to where the ultimate liability lies: is it on the property or on the developer to whom the planning permission was granted?

WCC is of the opinion that unpaid planning contributions are a charge on the property itself and not on the developer and has issued letters of demand to a number of the homeowners of the Meadow Brook estate for a portion of the unpaid financial contribution. The total amount claimed by WCC is just over €65,000.00 in total.

The issue of unpaid financial contributions is a matter for each local authority. Financial contributions are a source of significant funding for local authorities and given that there are reportedly €300 million in unpaid financial contributions in respect of planning permissions nationwide it is likely that WCC will not be the only local authority adopting this approach in such circumstances.

Dublin City Council has however recently stated that its policy is not to pursue householders.  Both Dun Laoghaire Rathdown and Fingal County Council are reported to have stated that they were unable to be definitive about their approaches to the issue. However whether or not local authorities adopt a policy of pursuing home and property owners the problem is likely to rear its head on a sale or remortgage when a purchaser or his solicitor will immediately seek clarity from the local authority concerned.

Given the history of insolvent developers in the Sandyford and surrounding areas local home and property owners may not be immune to this problem.

The precise legal basis for the actions of WCC in issuing these letters of demand to the homeowners of the Meadow Brook estate is unclear and may soon become the subject of a test case.  The matter may well have broader implications for all property owners both residential and commercial in circumstances where financial contributions remain unpaid.

The outcome of this move by WCC will be awaited with great interest by property owners, investors, lawyers, banks and insolvency practitioners.

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Homeowners Threatened With Legal Proceedings For Developer’s Failure To Pay Financial Contributions”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.
Download Buying Residential Property Guide 2020

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