What is Examinership?

Examinership was first introduced in 1990 as part of the Companies Amendment Act and is designed as a last chance of rescue for companies that are struggling financially. The aim is to find a way out of trading problems and allow a structured approach to settle up all debts with their creditors, while preventing job losses and allowing the company to continue trading rather than having to go into liquidation.

What are the benefits of Examinership?

• Once Examinership is granted and an Examiner is appointed the company is protected by the High Court, from its creditors. This Court protection will prevent any creditor from appointing a receiver to the company and allow them to continue trading during the duration of the Examinership.
• In the event where a Director of a company has given personal guarantees on the company’s debts, Examinership means that no legal proceedings can be made against that Director for payment of the company’s debts.
• Employees and customer service are an integral part of business, without them the company cannot trade, Examinership allows the company to continue trading under the protection of the High Court.
• During Examinership, the Directors of the company retain all their executive powers.

How can a company go into Examinership?

In order to go into Examinership the company needs to able to prove that the company cannot pay it’s debts and also that the company has a realistic chance of survival and resuming trading after Examinership is granted.

The Examinership process was previously only available in the High Court but in 2013 the government introduced law allowing a company to apply the Circuit Court for the appointment of an Examiner with a view to making the process more accessible to small to medium businesses.

To be considered for Examinership the Court must be petitioned for the appointment of an Examiner. The people who can petition the Court for appointment of an Examiner are either:

• Company Directors
• A Creditor or prospect Creditor (e.g. an employee)
• members of the company that hold no less than one-tenth of the paid up capital.

An independent accountant’s report must be provided to the Court.  Company creditors have the right to be heard by the Court when the appointment of an Examiner is being considered.

If appointed, the Examiner must examine the company’s affairs and report to the Court. If the Examiner’s proposal is confirmed by the Court, it becomes binding on the company, its members and creditors. If the Examiner’s proposal is not confirmed by the Court or is unsuccessful, the Company no longer has Court protection and a liquidation or receivership might be next step for the company.

How much does Examinership cost?

The cost of Examinership will be different depending on the company. The initial costs are the cost to petition the court for consideration for Examinership and the accountants report – these can be expensive for a company that is struggling to pay its debts. Following this there are ongoing Examiner’s fees to take into account during the protection period and these costs vary depending the company.

It is important to remember regardless of the cost of Examinership, companies that go into Examinership and make it out the other side usually are financially better off than they were before entering Examinership.