The Gazette 1992

GAZETTE

SEPTEMBER 1992

discretion on the court as to how the power to appoint an Examiner should be exercised. Indeed the only guide given appears in Section 2 (2) where the court is empowered particularly to appoint an Examiner if it considers that such an appointment would be likely to facilitate the survival of the company or any part of it as a going concern. This is clearly not a fetter on the power to appoint an Examiner - indeed, Finlay CJ regarded that section as providing a "strongly persuasive obligation" to appoint an Examiner where such an order is likely to facilitate the survival of the company. 10 The English Insolvency Act 1986, on the other hand, sets out the particular purposes for whose achievement an Administration Order (the equivalent of the appointment of an Examiner for these purposes) may be made, and the order so made must specify the particular purpose or purposes for which it is made. 11 The English courts have also adopted "the real prospect" test on a number of occasions and indeed have sometimes held that the evidence must enable the court to hold that the purpose in question sought to be used by the making of an Administration Order will more probably than not be achieved. 12 While this approach may well be an example of judicial self- restraint, the Irish courts are given a wide discretion of the exercise of their powers under the 1990 Act. 13 An objection made by a secured creditor of a company to the appointment of an Examiner may carry considerable weight - but it cannot operate as an absolute veto. McCarthy J was of the view 14 that while the appointment of an Examiner may lessen the eventual return to the secured creditor, in the event of the company not surviving, the damage to other creditors (perhaps less well equipped to bear the loss) may be far greater. Indeed it has been accepted that the interests of a secured creditor may weigh far lighter in the scales than the interests of other creditors when a court is asked to decide on whether or not to appoint an Examiner. 15 A declaration of the sort

granted in this case enabling an Examiner to borrow funds despite the existence of a fixed charge held over all the assets and book debts of the company is undoubtedly irritating in the extreme to any secured creditor. But the Act clearly empowers the court to make orders ancillary to the appointment of an Examiner including an order vesting all or any of the functions or powers of the directors in the Examiner (presumably including the power to borrow). It is clear that a declaration according priority to the repayment of such funds borrowed because they were expenses properly incurred by the Examiner is extremely useful to an Examiner in attempting to persuade financial institutions to advance him monies. He can thus place before any potential lender the conditions under which the proposed borrowing is taking place and the priority which its repayment would have in the event of the continued insolvency of the company. 16 While not a charter for the appointment of an Examiner it is clear as a result of this decision that in any situation where it would be considered worthwhile to examine the prospects of survival of a company, a court should be extremely slow to exercise its discretion against a petitioner who seeks the appointment of an Examiner and the protection of the court. Unless there are exceptional circumstances which effectively negative the identification of any possibility for the survival of the company, a court is likely to appoint an Examiner at least to allow an opportunity for the examination of the prospects of the company to take place (under the protection of the Court) over a short period. Once an Examiner is appointed (even on an interim basis) the court will naturally attach weight to his views, he being an independent court appointed officer. Even the appointment of an interim Examiner may assist a petitioner in defeating opposition at the hearing of the petition. A report prepared by him setting out whether or not he thinks the company is capable of Implications of The Decision

survival is helpful and the court, in making what is essentially a commercial decision, must necessarily place considerable reliance on the views of an insolvency practitioner in such a situation. 17 The appointment of an interim Examiner is also obviously essential where the company wishes to continue to trade. Since such a company is technically insolvent, it would not be in a position to make payments of day to day outgoings and expenses unless these were certified at the time of being incurred as being appropriately and properly incurred by the Examiner under section 10 of the Act. But the decision has found very considerable disfavour with banks, and it is not hard to understand why. A bank which has secured its loan to a company by taking a charge over the assets of that company sees the appointment of an Examiner as a threat to its security, since it may well be forced as part of a court sanctioned scheme of arrangement to dilute its claim and be paid only a fraction of what it is owed. Insofar, therefore, as the decision widens rather than restricts the criteria for the appointment of an Examiner, it was bound to provoke an adverse reaction from such institutions. Even more galling for a bank must be the priority accorded under section 29 to the costs and expenses properly incurred by the Examiner in the course of the examinership, the payment of which will take precedence to any other claim, secured or otherwise, against lending institutions of the Act have intensified since the decision. This hostility has already manifested itself in the course of the ill-fated examinership of the United Meat Packers group of companies. The refusal of banks (who were already secured creditors) to advance further monies to enable the companies to survive during the period of Examinership left the Examiner with no option but to indicate to the High Court that continued court protection was unlikely to facilitate the company. Unsurprisingly, therefore, the criticisms by the

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