The Minister for Trade Promotion, Digital and Company Regulation, Robert Troy T.D. today has welcomed the signing of regulations which will fully transpose into Irish law mandatory articles of the European Union Preventive Restructuring Directive (EU Directive 2019/1023) that relate to corporate insolvency.
This Directive ensures that across the EU viable enterprises that are in financial difficulties have access to effective national preventive restructuring frameworks that can enable them to continue to operate.
Announcing the signing of the regulations, Minister Troy said:
“The aim of this Directive is not to interfere with what already works well in a Member State but to establish an EU-wide framework to ensure effective restructuring processes that are efficient both at national and cross border level.
“Ireland’s examinership framework is widely viewed as an example of best practice on preventive restructuring and already complies in numerous respects with the Directive requirements. Amending this tried and tested framework to give full effect to the Directive makes sense.”
The Regulations primarily:
- carve-out workers’ claims from the stay which prevents creditors from enforcing their security against the company during the period of protection of the Court;
- codify the existing common law duty of a director to creditors in the period approaching insolvency;
- provide for an explicit 12-month cap on the total duration of the stay;
- explicitly prevent creditors from withholding performance or terminating executory contracts where an examinership process is commenced;
- make procedural changes to the cross-class cram-down process; and
- provide for an early warning system which will outline good practice to enable a company to detect a deteriorating business and take corrective action at an early stage.
The Minister welcomed the provisions enacted under the Regulations which protects workers’ interests and help to secure jobs where possible during the examinership process:
“The Regulations amend the Companies Act 2014 to exclude workers’ claims from the scope of the stay against creditors ensuring workers cannot be prevented from seeking to enforce any claim against the company during the examinership process.
“Preventive solutions are vital to supporting the long-term viability of businesses in temporary financial difficulties. To this end, the Regulations also provide for directors to have regard to an early warning system setting out good practice which can alert companies so that they can act to take the steps necessary to avoid or overcome insolvency. This will shortly be available on the Corporate Enforcement Authority website and will set out useful information and corrective steps that viable businesses need to take in order to respond and recover, thereby helping such companies to maintain employment or minimise job losses.”
“Company law is dynamic and I have demonstrated my commitment to keeping it under review with the dedicated Small Company Administrative Rescue Process, which is designed to allow viable small and micro companies experiencing temporary financial problems to restructure with the agreement of creditors.
“The mandatory articles of the Preventive Restructuring Directive are now in effect and integrated with Ireland’s examinership regime. It is my intention that the optional articles will be further examined having regard to domestic law and wider EU and international developments and I intend to include this in the forthcoming work programme of the Company Law Review Group.”
Notes to Editors
Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 (PRD) ensures that across the EU viable enterprises that are in financial difficulties have access to effective national preventive restructuring frameworks that can enable them to continue to operate.
The PRD deals with both corporate and personal insolvency. The Department of Enterprise, Trade and Employment is responsible for corporate insolvency while the Department of Justice is responsible for personal insolvency and bankruptcy.
Ireland’s examinership framework is generally viewed as an example of best practice on corporate preventative restructuring and already complies in numerous respects with the PRD requirements.
The Regulations provide for the following key changes to examinership law:
Introduction of an Early Warning System
The purpose of an early warning system is to alert companies of a situation, so that they can act to prevent insolvencies and allow them to take steps to avoid or overcome insolvency. The early warning system will provide information on good practice so that businesses can take corrective actions to ensure their ongoing viability and protection of jobs.
As part of its compliance advocacy role, the newly established Companies Enforcement Authority will soon make available on its website useful information and steps to assist viable businesses to respond and recover.
Workers cannot be prevented from seeking to enforce any claim against the company during the period of stay.
Director’s duties to creditors
The common law duty of a director’s duty to creditors in the period approaching insolvency, often referred to as the ‘twilight zone’, is now provided for in law.
Maximum length of the term of stay on proceedings
The Regulations provide for an explicit 12-month cap on the total duration of the stay is provided for. In practice, the courts rarely grant a further extension of more than seven months.
The Regulations explicitly prevent creditors from withholding performance or terminating executory contracts to the detriment of the company by reason of them commencing an examinership. In practice many creditors continue to supply essential services/supplies in the knowledge that the liabilities incurred by the company are certified as expenses of the examiner.
A cross-class cram-down allows the court to confirm a scheme of arrangement despite there being one or more classes of dissenting creditors or other affected parties.
While Irish law provides for a cross-class cram-down in terms that closely align with the Directive some procedural amendments to the Companies Act have been made to ensure there is full alignment.
European Union (Preventive Restructuring) Regulations 2022 Information Note