Taking Advantage Of Examinership Opportunities

/ 16th March 2021 /

Buying a company out of examinership is challenging but the advantages are considerable, writes Judith Riordan of Mason Hayes & Curran LLP

Judith Riordan is a restructuring, insolvency and commercial litigation Partner at Mason Hayes & Curran LLP Website: mhc.ie/plus

Many previously healthy companies are now fighting for survival as a result of the pandemic. Examinership can offer a clear path to financial stability for certain companies, particularly those with legacy debt.

Examinerships also present clear prospects for distressed debt investors seeking opportunities. At the end of a successful examinership, the company has usually disposed of its unsecured debt, extracted itself from unprofitable contracts, and insulated itself from future claims for any historic liabilities. It is, in effect, a ‘clean’ company when it emerges from examinership.

Examinership Process

Examinership is a court-supervised rescue process lasting a maximum period of 150 days, during which a distressed company is insulated from creditor action. The directors retain day-to-day management while the Examiner is tasked with reviewing the financial position of the company and formulating proposals for a scheme of arrangement to ensure it survives.

The scheme of arrangement is typically formulated around a fresh injection of funds and a write-down of debt across the various classes of creditor. That fresh injection of funds can be from existing stakeholders, but it does not have to be.

This is where the opportunity lies – the Examiner will test the market for investment interest. In reviewing the expressions of interest, the Examiner may select whichever investor will offer the greatest prospect for the company’s survival as a going concern. While important, the amount of cash will not always determine the matter. The Examiner will also consider market experience, synergies that might be introduced, the ability to inject additional funds at a future date and any other relevant non-cash considerations that will ensure survival.

The courts have previously highlighted the importance of the commercial judgment of the Examiner in calibrating competing interests. From an investor’s perspective, highlighting any existing knowledge or industry experience will be a positive. It will be also important to demonstrate to the Examiner that funds are available, as there is little scope for delays in the process.

Due Diligence

Performing due diligence can present an issue in many distressed investment scenarios. The time frame and potentially limited scope for due diligence can be challenging. Investors in an examinership should expect to be met with a certain level of resistance for detailed requests for information.

The Examiner is always cognisant of the time frame; the time limits are absolute and this is something that potential investors need to understand from the outset. Accordingly, investors should take prompt action in exploring the viability of an investment and request that the Examiner provide all available information as quickly as possible. It will quickly become clear if an investment is going to proceed or not, so very little time is wasted if another party is selected as a preferred investor.

Creditor Support

It will be important to understand whether secured creditors are supportive of the proposed restructuring. Unsecured creditors can be disposed of with modest dividends in the scheme, with limited scope to object. However, a secured creditor has the benefit of its security. Therefore, it is key to assess if the examinership may increase the loan repayment capacity post-examinership or whether an investor intends to offer a secured creditor an immediate payment in excess of the value of its security. Consideration of this issue is critical in terms of the outcome of the process.

Conclusion

Examinership affords ample opportunity for the shrewd investor seeking value in an established business, where that business is expected to ultimately exit the examinership process without the majority of, or indeed any, liabilities that had accumulated prior to entering the process.