Ireland
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1. Insolvency and restructuring procedures
1.1 – What are the main insolvency and restructuring procedures applicable to companies?
Examinership
Examinership (under Part 10 of the Companies Act 2014) is a process whereby the court places a company under its protection (essentially a moratorium on creditor action of up to 100 days) to enable a court-appointed examiner to investigate the company’s affairs and to report to the court on its prospects of survival. For the application to succeed the company must be unable, or likely to be unable, to pay its debts as they fall due. No order for the appointment of an examiner shall be made unless the court is satisfied that there is a reasonable prospect of the survival of the company as a going concern. The examiner will formulate proposals for a scheme of arrangement for the survival of the company. If the scheme is approved by the court and successfully implemented, the balance sheet is restructured, and the company returns to solvency. If the court rejects the scheme or the examiner believes that the company can no longer return to solvency, the moratorium is withdrawn, and the company usually goes into liquidation.
Receivership
Receivership is a legal process where a receiver is appointed to manage and realise a company’s assets to repay creditors, who are generally a chargeholder, or address financial difficulties. Governed by the Companies Act 2014 and the National Asset Management Agency Act, receivership can be initiated by a secured lender through a deed, without court involvement. The receiver’s primary role is to gather, collect, and sell the secured assets, often under a fixed or floating charge. Unlike examinership, receivership focuses on asset realisation rather than company rescue, providing a mechanism for creditors to recover debts efficiently. The receiver acts as the company’s agent, not the debenture holders, and is responsible for the company’s assets within the scope of the security.
Scheme of Arrangement
A scheme of arrangement (under Part 9 of the Companies Act 2014), is a statutory procedure allowing a company to restructure its capital or obligations with its members and creditors. This process involves negotiating a compromise or arrangement, which must be approved by a majority in number representing at least 75% in value of the creditors or members present and voting at a scheme meeting. The scheme requires the sanction of the High Court to become binding. It is a versatile tool used for various purposes, including mergers, demergers, and corporate reorganisations, providing a flexible mechanism for companies to achieve restructuring goals.
Liquidation
A liquidation may be commenced (i) by an order of the court (“compulsory” or “official” liquidation), usually on the petition of a creditor or (ii) by resolution of the company’s shareholders (“voluntary liquidation”). The liquidator will realize the assets of the company and distribute the proceeds among the creditors in accordance with the priority set by law.
Small Company Administrative Rescue Process (SCARP)
The Small Company Administrative Rescue Process (SCARP) is a streamlined restructuring mechanism designed for small and micro companies in Ireland facing insolvency. Introduced under the Companies (Rescue Process for Small and Micro Companies) Act 2021, SCARP offers a quicker and more affordable alternative to examinership, with limited court involvement. SCARP is available to small and micro sized companies only.
1.2 – Can a company obtain a moratorium whilst it prepares a restructuring plan? If so, what is the effect of the moratorium?
Where a company requires protection whilst a restructuring is effected, it will generally avail of the examinership process which will provide for a restructuring moratorium for a maximum of 12 months, provided the examiner has presented his or her report within the maximum period of time (150 days) as introduced under the EU (Preventive Restructuring) Regulations 2022 which came into effect on 29 July 2022.
The moratorium under examinership in Irish law has several significant effects:
- It prevents creditors from initiating legal proceedings, enforcing security, or appointing a receiver against the company during the protection period. Changes made to the examinership processing by the European Union (Preventive Restructuring) Regulations 2022 carved out employees from the moratorium provisions, meaning companies in examinership no longer enjoy complete protection from employee claims.
- The company can continue trading and operating without the immediate threat of liquidation, allowing it to restructure its debts and propose a viable scheme of arrangement.
This is no automatic stay on creditor enforcement action for companies undergoing SCARP. Court protection can be obtained however by application to court by the Process Advisor.
1.3 – How long will it generally take for a creditor to achieve the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?
- Court Liquidation – Typically, it takes between six and ten weeks for a creditor to achieve the liquidation of an insolvent company through court liquidation, assuming an undisputed claim and no opposition from the company.
- Creditors’ Voluntary Liquidation (CVL) – This process can also take a similar timeframe, depending on the efficiency of the proceedings and the cooperation of the involved parties.
1.4 – Does your jurisdiction make use of a distressed sale process by which the business/assets of the company can be sold?
In Ireland, a distressed sale process is utilised through receivership. A secured lender can appoint an insolvency practitioner to take possession of and sell or otherwise realise secured assets. Additionally, pre-pack receiverships allow the sale of a distressed company’s business or assets to be negotiated shortly before a receiver is appointed and executed shortly thereafter, aiming to minimise disruption and costs.
2. Insolvency office-holders and courts
2.1 – Who can act as an insolvency office-holder?
In Ireland, insolvency officeholders must meet specific qualifications and hold appropriate certifications. Insolvency practitioners are typically accountants with requisite experience in insolvency and must hold a current Insolvency Practising Certificate issued by Chartered Accountants Ireland. Liquidators, who are appointed to wind up a company, must also be qualified accountants and hold the necessary practising certificates. Examiners, appointed by the court to oversee the restructuring of a company, are usually experienced insolvency practitioners or accountants. These professionals are regulated to ensure they have the necessary expertise to manage insolvency processes effectively.
2.2 – Who decides the identity of the insolvency office-holder, and what restrictions apply?
- CVL: the majority of the creditors in value decide the identity of the liquidator;
- Court liquidation: the petitioner, which can be a director, creditor or shareholder of the company decides the identity of the liquidator;
- Receivership: the secured lender (usually a bank) appoints the receiver;
- Examinership: the petitioner, which is generally the directors of the company;
- SCARP: the company directors propose the insolvency practitioner, subject to creditor approval;
- Scheme of Arrangement: the company proposes the insolvency practitioner subject to court approval
2.3 – Are insolvency cases heard by specialist judges, or in the general commercial courts?
Insolvency cases are heard by in the general commercial courts.
3. Position of directors
3.1 – To what extent do the directors of the company remain in control of its affairs during any of the procedures described above?
Examinership – the directors remain in control of the company absent a court order to the contrary.
Receivership – the directors remain in situ, but they have no control over the secured assets the subject of the receiver’s appointment.
Liquidation – the powers of the directors cease, and the liquidator takes control of the company.
SCARP – The directors remain in control, but a Process Advisor is appointed to develop a rescue plan.
Scheme of Arrangement – the directors remain in control during the process, but the scheme must be approved by the court and a majority of creditors or shareholders.
3.2 – Are there circumstances in which directors are obliged to file for insolvency proceedings? If so, when do those circumstances arise?
Yes, under Irish law, directors are obliged to file for insolvency proceedings in certain circumstances:
- Directors must file for insolvency if they believe, or have reasonable cause to believe, that the company is unable to pay its debts as they fall due. This includes both balance sheet insolvency (liabilities exceed assets) and cash flow insolvency (inability to meet debts when due).
When there are questions about a company’s ability to trade on a solvent basis, directors must prioritize the interests of creditors. This includes taking steps to avoid insolvency and considering the need to file for insolvency proceedings.
3.3 – What are the risks facing the directors of an insolvent company?
Directors may be held civilly liable, and therefore personally liable, for all or some of the company’s debts, for:
- Reckless trading: where a director was knowingly a party to the carrying on of business in a reckless manner. A director will be deemed to have been party to the reckless trading if they ought to have known that their actions or those of the company would cause loss to the creditors of the company or they were party to the contracting of a debt by the company and didn’t honestly believe on reasonable grounds that the company would be able to pay the debt when it fell due (as well as its other debts)
- Fraudulent trading: where a director was knowingly a party to the carrying on of any business of the company with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose
- Misfeasance: where the director misapplied or retained money or property of the company or is guilty of any misfeasance or breach of duty or trust in relation to the company
Where a director has made a declaration of solvency in relation to a company as part of the statutory ‘summary approval procedure’ to the effect that the company will be able to pay or discharge its debts and other liabilities and where that declaration is made without reasonable grounds, then the court may declare that director to be responsible, without limitation, for all or any of the company debts. Where a company enters insolvent liquidation within 12 months following the making of the declaration, there is a presumption that there were no reasonable grounds for the making of the declaration.
The liquidator of an insolvent company is obliged to bring an application for the restriction of the company’s directors unless the Corporate Enforcement Authority (CEA) directs them not to do so. Where a director cooperates with the liquidator and acted honestly and responsibly throughout their directorship, the CEA is unlikely to consider that they should be restricted.
Directors may also be held criminally liable for a number of insolvency related offenses including fraudulent trading.
4. Position of creditors
4.1 – What are the main forms of security over movable and immovable property?
Security over immovable property is taken by:
- fixed charges including mortgages; and
- floating charges
Security over moveable property is taken by:
- fixed charges; and
- floating charges
Security over tangible property is taken by possessory security:
- pledges; and
- liens
4.2 – How does the opening of insolvency proceedings affect the rights of secured creditors?
In examinership there is an automatic stay on enforcement action by creditors (secured or otherwise) or the commencement or continuation of legal proceedings without the consent of the court or the examiner for the duration of the court protection period. In general, a creditor’s right to enforce its security is unaffected by a liquidation and the secured creditor may proceed to realize its security provided that it does so outside any court proceedings.
4.3 – Where a debt owed to a secured creditor exceeds the value of the security, is the secured creditor entitled to claim for the shortfall?
Yes. A secured creditor who has realized his security may prove for the balance of his debt (ie in a liquidation) after deducting the amount realised. Furthermore, if a secured creditor voluntarily surrenders his security for the general benefit of creditors, he may prove for his whole debt as if it were unsecured.
4.4 – Which classes of creditor are given preferential status? Are any classes subordinated?
The costs and expenses of examiners and liquidators have priority to all debts including secured debts. Debts owed to employees, tax authorities and other state creditors are preferred to ordinary unsecured creditors. Sums due to the shareholders of a company are subordinated below the claims of unsecured creditors.
4.5 – Is there a date by which creditors must make claims in the insolvency proceedings? If so, what are the consequences of failing to claim by that date?
There is no formal requirement although liquidators and examiners often set a deadline by which a creditor must prove their debt. The Statute of Limitations will also set out the appropriate limitation period for the issuing of proceedings for the collection of debts (six years for breach of contract).
4.6 – Are contractual rights of set-off and/or netting effective in insolvency?
Under statutory insolvency set-off rules, set off of mutual credits and debts is permitted, but not mandatory. In addition, contractual set-off will survive insolvency and is enforceable against a liquidator.
4.7 – Are contract terms permitting termination of a contract by reason of insolvency (“ipso facto clauses”) effective?
Creditors affected by a stay on their claims are prohibited under the EU (Preventive Restructuring) Regulations 2022 from withholding performance, terminating, accelerating, or otherwise altering “essential executory contracts” solely because an examiner/interim examiner has been appointed and/or the company is unable to pay its debts. “Essential executory contracts” are contracts where the parties still have obligations at the time of the stay and that are necessary for the continued operation of the business. Likewise, the company must fulfil its obligations under these contracts during the stay.
For other types of insolvency proceedings, “ipso factor clauses” are effective.
4.8 – Are retention of title clauses enforceable and (if applicable) what are the main requirements for enforceability?
Yes, provided that the ROT clause is properly incorporated into the contract between the parties and the goods in question can be identified and retrieved.
4.9 – Are foreign creditors treated equally to domestic creditors?
Yes, foreign creditors are treated equally to domestic creditors in Ireland. They can file their claims in the same manner as domestic creditors, without any distinct process. This ensures that all creditors, regardless of their origin, have equal standing in insolvency proceedings.
5. Setting aside transactions
5.1 – What are the main transaction avoidance provisions applicable to the proceedings referred to above?
An insolvency officeholder may challenge:
- transactions at an undervalue (concluded in the two years prior to the commencement of insolvency proceedings);
- unfair preferences concluded within such periods as the court deems “just and equitable” having regard to the circumstances;
- floating charges granted in respect of pre-existing indebtedness (in the year prior to the commencement of insolvency proceedings (two years where the chargeholder is connected to the company)); and
- transactions defrauding creditors (no time limit on bringing a challenge).
5.2 – Who is entitled to challenge transactions under these provisions?
Generally, the insolvency officeholder. In some circumstances a cause of action may be assigned to creditors.
6. Cross-border insolvency
6.1 – Do your courts recognize insolvency proceedings commenced in the courts of other jurisdictions?
Yes, Irish courts do recognize insolvency proceedings commenced in the courts of other jurisdictions, particularly within the EU. This recognition is facilitated by the European Union Recast Insolvency Regulation (2015/848/EU), which ensures that insolvency proceedings initiated in one EU member state are recognized across other member states.
For countries outside the EU, the insolvency practitioner can apply to the Irish courts seeking an order recognizing the proceedings. However, Ireland has not adopted the UNCITRAL Model Law on Cross-Border Insolvency. This means that recognition of non-EU insolvency proceedings is not automatic and requires a specific application to the Irish courts.
6.2 – If so, what assistance can your courts provide, following recognition?
The Irish courts routinely interact with courts in foreign jurisdictions and approve protocols on a case specific basis to manage cross-border insolvency proceedings including recognising moratoriums. Following recognition, Irish courts can provide various forms of assistance in terms of the enforcement of judgments and orders made by foreign courts in recognised insolvency proceedings. In this regard, the Irish courts can assist in the location and recovery assets within Ireland that belong to the insolvent entity; coordinating with foreign courts to manage concurrent insolvency proceedings; and ensuring that the rights of creditors are protected during the insolvency process.
6.3 – Is it possible to commence insolvency proceedings in relation to a foreign company?
Under the European Union Recast Insolvency Regulation (2015/848/EU), if that company has its centre of main interests (COMI) located in Ireland, winding up and examinership proceedings can be commenced in Ireland in relation to an EU company. Where a company is incorporated in a country that is not subject to this regulation, subject to the court’s discretion, if that company has its COMI or an establishment in Ireland, insolvency proceedings may be commenced here.
7. Other matters
7.1 – Please consider whether there is any other feature of your country’s insolvency regime of which a lender, investor or purchasers of distressed debts or businesses should be aware? For example, are there any mistakes that foreign creditors often make?
International creditors often confuse the Irish examinership procedure with the UK concept of administration. While there are certain similarities, they are not identical. One key difference is that examinership under Irish law is more frequently (but not always) used by the company as a shield against creditor action. We understand that administration is usually creditor-driven.
7.2 – Are there any other stakeholders or entities (eg governmental or regulatory) which may influence the outcome of any restructuring?
The CEA, which replaced the Office of Director of Corporate Enforcement in July 2022, plays a crucial role in encouraging compliance with company law and investigating and enforcing suspected breaches. The Director of the CEA achieves this by publicly communicating the benefits of compliance and the consequences of non-compliance, as well as investigating suspected breaches of company law reported by creditors, stakeholders, and other interested parties.
Additionally, the Irish Revenue Commissioners, as a preferential creditor under Irish insolvency laws, have a significant influence on the outcome of any restructuring. Their status ensures they have priority in claims, impacting the distribution of assets and the overall restructuring process.
7.3 – Are there currently any proposals for significant reform of your insolvency laws?
No.
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