Ireland's corporate rescue legislation (now contained in
the Companies Act 2014) is analogous to the US chapter 11
process. It provides up to 100 days of breathing space for an
insolvent company which has a viable enterprise to see whether
it can put in place a restructuring plan. An independent
officer (the examiner) is appointed to examine the company's
affairs and, if possible, put in place a restructuring plan.
During this period the company cannot be wound up, security
granted by it cannot be enforced and it is immune from legal
process. Except in exceptional circumstances, the examiner does
not take over the management of the company. Therefore, (as in
chapter 11) it is a debtor in possession process. If the
examiner can put a restructuring plan in place, this is subject
to a pro-restructuring voting regime, with the ability to cram
down unsecured creditor claims.
The process is closely supervised by the court. Irish courts
have been astute to ensure that it is not used for ulterior
motives. The focus of the legislation is to preserve enterprise
value, with an emphasis on protecting the workforce from
redundancy. In some cases, it can be difficult to prove an
invalidating ulterior motive. However, the courts are prepared
to infer this from the circumstances. This is especially so
where the court takes the view that the move to appoint an
examiner is an abuse of process.
In the case of Vantive Holdings, the court refused
to allow the process to be used where earlier attempts had
failed, and the company was looking for what it termed a second
bite at the cherry based on evidence deliberately withheld in
the previous application. The court held that the second
application was an abuse of process and there had to be
finality to litigation.
Recently, in JJ Red Holdings, the court inferred an
improper motive where the company's application to appoint an
examiner came a month after settling rent arrears litigation
with its landlord. The company hoped to utilise the process to
reschedule the settlement's payment terms. The court held that
the public interest in finality of litigation prevailed. The
legislation could not be used to negotiate a court settlement
entered into mere weeks beforehand.
All of these cases show that Irish courts will not permit
examinership to be invoked for an improper purpose.