The Gazette 1992

GAZETTE

SEPTEMBER 1992

Appoint ing an Examiner - Is It Worthwhi le?

trade as a going concern while so doing, but will frequently require significant additional funding. A financial institution is unlikely to be willing to advance monies to an insolvent company unless it can be given an extremely firm assurance that monies so advanced by it will be repaid in priority to any other claims, even if the company subsequently goes into liquidation. By a combination of section 10 and section 29 of the Act, the Supreme Court enabled the Examiner to borrow monies by declaring that monies so borrowed and expended would be treated as expenses properly incurred by him and would be repaid in full out of the assets of the company in priority to any other claim. The effect of this part of the decision cannot be underestimated for it means that if such a declaration is made, an Examiner of an insolvent company would be able to borrow monies (which may indeed secure the future financial stability of that company) by guaranteeing to the relevant financial institution that these monies will be repaid in priority as reasonable expenses incurred by him, even if the company is subsequently placed in receivership or wound up. The fact that the financial institution in question is a secured creditor of the company with a charge over the entire of the assets which have become fixed will not necessarily be sufficient to enable it to prevent the Examiner from obtaining access to monies standing to the credit of the company in that financial institution. It is clear that the Supreme Court 4 were not prepared to countenance a situation where a secured creditor could also veto the appointment of an Examiner and the consequential exercise of a variety of powers which might follow from this. The purpose of the Act is to provide a protected "breathing space" for the company I and its shareholders, workforce and 273

by J ohn L O'Donnell, B.GL. L I .M. (Cantab), Barrister-at-Law.

Does a petitioner have to establish that a company has a real prospect of survival before the High Court will order the appointment of an Examiner? The recent Supreme Court decision in Atlantic Magnetics rejects this contention. John L. O'Donnell analyses the issues. obtaining court protection from pursuing creditors is undoubtedly attractive. In a procedure analogous to that of Chapter 11 in the United States, the Companies (Amendment) Act, 1990 allows the High Court to place a company under its protection and to appoint an Examiner to that company for the purpose of examining the state of the company's affairs during that period of protection. 1 The court, however, clearly has a discretion in exercising contained in Order 75 A envisage the possibility of appointing an interim Examiner on the basis of an ex-parte application prior to the hearing of the petition itself, 2 there does not appear to be anything to stop a creditor who has been served with notice of the hearing of the petition (or who has seen an advertisement of the hearing) from attending court at the hearing of the petition and objecting to the appointment of an Examiner to the company. Faced with such a dispute between a petitioner and a hostile creditor or creditors, the court must then exercise what appears to be a fairly wide discretion under the Act in deciding whether or not to appoint an Examiner. Since the matter of how this discretion is exercised may in such circumstances effectively mean the difference between survival To a company encountering severe financial difficulties, the prospect of its jurisdiction to appoint an Examiner and while the rules

John O'Donnell, BL and death for the company in question, it is unsurprising that a recent Supreme Court decision indicating how this discretion might be exercised has attracted considerable attention. 3 Insofar as the decision rejects the contention (apparent in a number of English decisions) that a petitioner should establish that the company has a real prospect of survival before an order for the appointment of an Examiner will be made, it is a decision which will surely be welcomed by stricken companies seeking at least the time to investigate whether or not their affairs can be put in order. The decision will thus facilitate rather than obstruct the appointment of an Examiner in the appropriate circumstances. The decision in Atlantic Magnetics was also of significance in another notable respect. Since an Examiner will not be appointed to a company unless it is (or is likely to be) unable to pay its debts, any appointment of an Examiner to a company in difficulty is in effect an express (or implied) admission of insolvency. An Examiner who wishes to investigate the prospects for survival of a company may wish to continue to