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Ireland: Corporate rescue

John Breslin

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.

John Breslin

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