Legal Issues

Examinership refers to an Irish law process which entails obtaining a court protection in order to help or assist a companys survival. This process allows a company to undergo restructuring after being approved by the countrys high court. Examinership or the protection granted by the Irish court to companies against their creditors makes it possible for a company to continue operating its businesses or carrying out trade as well as attract investment for a specified period of time. To attract the investors, a company is required to make its terms of investment more favourable or attractive.

Examinership process is managed by an examiner appointed by the court although the companys directors still assume its control. The end results of this process usually included a reduction of creditor balances with the companys intangible assets being protected (CRO n. d). During the examinership period, investments are usually in form of short-term investments. Examination or examinership option is only available to insolvent company and its aim is to help the company explore possible opportunities that may guarantee its survival. Examinership or examination was first introduced in the year 1990 by company amendment act during the gulf war which led to the collapse of Goodman group of companies. From its inception or introduction, this act has undergone formal changes in its legislation in the year 1999. Examinership practise has evolved very rapidly owing to its judicial interpretation of provisions in the original legislative and the development of case law.

Examinership
Examinership can be said to be a better alternative to liquidation and receivership. It is however different from liquidation and receivership in a number of ways. Under the law of Ireland, liquidation also known as the winding up of a business refers to the legal death of a company. There are two forms of liquidation it can occur after an order is issued by the court, referred to as official liquidation or liquidation can be voluntary which occurs after shareholders of a company voluntarily winds-up a business or when there is voluntary winding up of a company by the creditors. The most common type of liquidation procedure referred to by the Irish law, while dealing with matters of companys insolvency is the creditors voluntary liquidation. This type of liquidation occurs when the insolvent company initiates the liquidation procedures via its board. The liquidators main interest in this case is of the companys creditors. Members voluntary liquidation on the other hand refers to a mechanism by which the insolvent company via its members and directors makes a decision to liquidate or wind-up a company. While using this approach, members and directors simply sell off all the assets of the company and the surplus is distributed to the shareholders. Court liquidation occurs when a court declares a company insolvent. In this case, the court appoints a liquidator who values and liquidates all the assets of the company. Proceeds are used to pay off debts or the creditors with any surplus being distributed to the shareholders.

Unlike liquidation, receivership is not an initiative of the company but an initiative of its creditors. Receivership usually occurs after a company defaults loan repayment contracts or when a company defaults paying loans and debts. A receiver in such cases is appointed to run the company with his duty being to recover debts or money owned by the company to the creditor. During receivership, a company can resume its trading normally. However, a receiver may sell off some of the companys assets in order to recover the debts owed to the creditors. In such cases, a company may cease operating and may finally liquidate.

Examinership is actually a process or law that protects an entity from liquidation and receivership. Its aim is to ensure that creditors demand do not lead to the winding up of a business with potential for growth when faced with financial difficulties.

Examinership process
As mentioned earlier, examinership process aims at protecting companies from liquidation or receivership and to enable a company restructure its operations to ensure growth. Examinership being a process has several stages. Before a business can be granted examinership, it must be eligible for the same as per the provisions of the company amendment act of the year 1990. Examinership process begins by submission of a petition. The petition (for examiners appointment) may be submitted by the company itself, its directors, a creditor of the company (including a prospective or contingent, inclusive of an employee), or shareholders with over 110th of shares that have voting power. Following the receipt of a petition at the high courts central office, the company automatically becomes under court protection. An examiner for appointment is nominated by the petition and this petition must have a report from a independent accountant. In case this report is not present, the petitioner is required to apply to court for the companys protection. For this purpose, the company amendment act defines an independent accountant is a person who is the companys auditor or who is who has qualifications of being the companys examiner (Stafford  Murray, n. d).

In the independent accountants report, the company officers names and addresses must be given as well as the shadow directors, names of other corporate bodies headed by the companys directors, the companys state of affairs including its liabilities and assets, the accountants opinion on whether asset-liabilities deficiency is satisfactorily accounted for or not including any a statement on whether there is evidence of disappearance of substantial properties not accounted for, his opinion on the survival feasibility prospect of the company and a statement of vital conditions for ensuring survival, his opinion on whether examinership offers a reasonable survival prospect for the company, recommendations on what the strategies he thinks needs to be undertaken for the company to survive including draft proposals, details pertaining to funding requirements during the period of protection and sources of such funds, recommendations on pre-petition liabilities that need to be paid, his opinion pertaining to whether an examiner needs to be assisted by court direction in regard to creditor committee and other matters he may deem relevant. The accounts by the independent accountant must be prepared according to the insolvency statement known as Appointment as Examiner under the Companies (Amendment) Act, 1990 issued in the year 2008 by the The Consultative Committee of the Accountancy Bodies of Ireland (Murphy, n. d). Under this statement, an accountant is constrained if he gives the petition three days following the appointment of a receiver as was the case of Liam Carroll company or (Beauchamps Solicitors, 2009), his reports lacks satisfactory evidence or information in support of the belief that an examiners appointment would save the company, or the impact of significant cumulative caveats andor uncertainties contained in the report expresses an opinion that examiners appointment would be advantageous than liquidation.

Independent accountants report is essential during a petitions presentation although the act does not specifically require it. This report must be signed by the accountant using his name as well as the firm he or she works for. An auditor may cease being independent in cases where a company owes him fees. This situation requires hiring an independent accountant. Also required by the petition include the petitioners name and address, his or her capacity, companys incorporation date, companys registered office, companys paid-up and nominal share capital, and the companys objects. The petition is also required to show that company in question has a likelihood of not paying its debts, the company has no existing resolution for its closure, and no winding-up order has been made for the company (Cotter, Mooney Law Society of Ireland  Cahir, 2003).

The act contains five notification obligations which states that petition notice must be presented to registrar of companies by the petition not later than 3 days after it is presented, an examiner must publish his appointment in 2 daily newspapers within a span of 3days following his appointment, the examiner must publish a notice of his appointment in Iris Oifigiuil within a span of 21days following the appointment, an examiner must furnish the registrar of companies with a copy of the court order 3 days after his appointment and lastly the in cases where a company is put under courts protection, all invoices, business letters issued and order of goods for the company must contain the words In Examination (under the Companies (Amendment) Act 1990 after the companys name (Stafford  Murray, n. d).

Following the presentation of a petition to the high court, the act states that, 70 days from the petitions presentation date, the company in question will be protected. This period can be extended for another 30 days. During this period, creditors are not allowed to take action against the protected company. During this period, closure proceedings are not allowed, a receiver cannot be appointed and the creditors cannot enforce any judgment. Other provisions contained in the company amendment act relates to the examiners powers, the power of the directors, pre-petition debts repayment restrictions and meetings of members and creditors. After protection is granted, a company is expected to resume its normal period before or by the end of the protection period. In case examinership turns out to be unsuccessful, the said company undergoes liquidation.

Several companies have undergone examinership. Modern Timber Homes Company is one of the companies that underwent through this process. Modern Timber Homes Company was established in the year 2004 by an entrepreneur Shaun McColgan. Its businesses revolved around building roof trusses, door systems and timber frames. In the year 2006, the company was awarded for being the best enterprise by the national enterprise awards. However, in June year 2008, the company began experiencing financial constrains after which it sough for protection via examinership. Unfortunately, the company did not recover during the examinership period leading to its liquidation on November 2008.

Conclusion
Examinership is a process that is largely accepted and employed in Ireland. Only a few countries have such protection laws for protecting solvent companies and giving them a chance to recover to avoid liquidation or receivership. Examinership can be beneficial to a company in helping it recover during times of financial constraint. It protects a company from the creditors. However, this process must be initiated on time to avoid denial or constraint like in the case of Liam Carroll Company. However, the period granted for recovery by this law is quite small which makes most examinership to be unsuccessful.