The Gazette 1992

GAZETTE

SEPTEMBER 1992

after the examinership. There is nothing to prevent a secured creditor from attempting to persuade an Examiner to apply under section 9 to court to have all the functions and powers of the directors performed only by the Examiner. Indeed, it is arguable that such a secured creditor could apply itself to court as an interested party if the Examiner failed or refused to apply, where the affairs of the company were being conducted in a manner likely to prejudice the interests of the company, its employees or creditors as a whole under section 13 (7). 20 Secured creditors are also entitled to be heard at any hearing by the Court of the Examiner's proposals for a scheme of arrangement under Section 24 if their claims as creditors would be impaired if the proposals were implemented. As a secured creditor will almost certainly be receiving less than its full claim (including e.g. interest) under the proposals, its claim is clearly "impaired". 21 Creditors may choose to oppose the proposals completely. In a recent decision, however, the court modified a scheme of arrangement proposed so that directors would not be released from the personal guarantees given by them to a bank, and further ordered that two directors would cease to act as directors of the company henceforth. 22 This type of modification preserves the liability under personal guarantees of directors and other such persons which would otherwise be effectively extinguished after the confirmation of proposals under section 24 (6). It may also be encouraging for a creditor to know that the power of the court to modify proposals for a scheme of arrangement can be used to remove officers whose conduct has been unsatisfactory or lacking in candour. It is now clear also that even at the early stages of the presentation of the petition, failure by the petitioner or its advisers to exercise utmost good faith or to disclose all material

facts may amount to an abuse of the process of the court (particularly where the application is made on evidence known to be false, or for an improper purpose). In another recent decision 23 Costello J. held that such an abuse of the process of the court could lead to the court refusing to sanction a scheme of arrangement. Commenting on the potential injustice involved in the making of a protection order when the proper course is to wind up the company, Costello J expressed the view that an Examiner should have a duty imposed upon him to consider whether any of the evidence placed before the court at the petition stage was misleading in any material respect, and to re-enter the matter before the court if this is the case. Costello J's judgment in that case also makes it clear that proposals for a scheme of arrangement will be scrutinised extremely carefully, and any ambiguities or inconclusive arrangements for the future of the company may prove fatal to such a scheme. In particular, the chances of a scheme being approved by the court are greatly jeopardised if adequate provision is not made for (among other matters) the future of the employees of the company - a scheme of arrangement is not to be regarded as being simply an investment opportunity in an ailing company. The court clearly has a wide discretion in deciding whether or not to appoint an Examiner, although a petitioner may well wonder whether it is "worthwhile" if a company which requires immediate funding has no prospect of raising money. But the examinership procedure involves a balancing of the rights of all creditors, not just secured creditors. There is much scope within the Act for a creditor to seek to have considerable restraints imposed on a company (and its officers) without having to condemn the company to Conclusion

the survival of the group and the Examinership was therefore terminated. 18 Clearly, if the banks maintain this attitude it will be extremely difficult for any company which requires an immediate cash injection in order to trade to survive, even during the examinership period. In the absence of some form of State-assisted funding (from perhaps a re- constituted version of Foir Teó) this practical expression of opposition by the banking institutions to the examinership legislation may render the appointment of an Examiner futile, unless a company can survive without borrowing for a period of some weeks. "This practical expression of opposition by the banking institutions to the examinership legislation may render the appointment of an Examiner futile, unless a company can survive without borrowing for a period of some weeks." which a secured creditor can go some way towards protecting its position. Before a petition for the appointment of an Examiner is presented, a secured creditor can appoint a receiver - and section 3 (6) (as amended) of the Act indicates that a court shall not give a hearing to such a petition if a receiver stands appointed, and has so stood appointed for a continuous period of at least three days prior to the presentation of the petition. One can certainly envisage an increase in the number of receivers appointed on a Friday - though this in itself is obviously not foolproof. 19 A secured creditor will often be critical of the management of the company, and may be unhappy that the same personnel will continue to run the company both during and But even within the terms of the Act as it now stands there are ways in

financial death. Insofar as the decision in Atlantic Magnetics

276