The Gazette 1992

GAZETTE

JULY/AUGUST 1992

1 W E T Examinership: Too many Difficult Ques t ions 1 N V P 0

The concept of Examinership, first introduced in the Companies (Amendment) Act, 1990 has been in operation for a sufficient time to enable its operation to be reviewed. It cannot be said that the experience has been entirely satisfactory and it

of the company, the lender may well take a view that its security, which cannot be enforced during the examinership, may not be improved if the examinership is permitted to proceed. In such circumstances the lender may refuse working capital. The Examiner may not be able to raise capital elsewhere having no security to offer. At first sight the answer to this difficulty is not obvious. It may not be reasonable to expect a bank which has already extended significant credit to a company and which is facing losses on that lending, to do anything other than try to cut its losses and freeze the company's obligations to it at the known level. What perhaps needs to be looked at, as has been suggested in these pages before, is the methods of operation of Irish lenders and indeed the whole concept of the floating charge and the power to appoint a receiver. The power to appoint a receiver gives a lending institution an unfair advantage over all unsecured creditors. This creation of English law does not exist in the United States or Canada which may explain why their curatorship procedures can operate more satisfactorily than appears to be the case either in the UK or in our recent history here. The ability to appoint a receiver enables lenders to take too relaxed a view of their creditor companies. Secure in the knowledge that they can at any time appoint a person to realise the assets of the company almost exclusively in their own interests, Irish banks, in contrast to their European counterparts, as a general rule, take no equity investment in the companies they lend to, do not appoint directors to the boards of significant borrowers and, most tellingly of all, do not review the financial accounts of their

creditor companies on a regular and satisfactory basis. Too often the lender only discovers the true

financial state of a borrower company when it is in grave difficulty.

The concept of a curatorship is a good one but there must be grave doubts as to whether it can operate satisfactorily in the interest of the creditors or companies that may be temporarily insolvent, or their employees, so long as the Damoclean sword of receivership hangs over Irish companies. •

is far from clear that teething troubles are the sole cause of concern.

Various Common Law jurisdictions have introduced provisions whereby companies which may be temporarily insolvent can be put into some form of curatorship during which their prospects of long term survival can be examined without the danger of creditors putting them into liquidation or receivership. These arrangements fall broadly into two types. The first, and best known, the US Chapter 11 System provides for the freezing of the creditors' rights to move for a specified period while the directors of the company, perhaps assisted by outside experts, endeavour to get the company back on the rails again. The other method exemplified by the UK Administrator and our Examiner system provides for the introduction into the company of an outside financial produce, within a relatively short period of time, a report on the financial prospects of the company and a plan for its survival. It is not too unkind to say that the drafters of our companies legislation do not seem to have given sufficient consideration to the position of the banks or other major lenders to the company in question. There is no obligation on a creditor bank to offer facilities by way of working capital for the business when it is in examinership. Given that most Irish banks and lending institutions will have fixed charges over the assets expert, almost invariably an accountant, whose brief is to

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