INSOLVENCY LAW, POLICY AND PROCEDURE
i Statutory framework and substantive law
Ireland is a sovereign state in Europe and a member of the European Union since 1973. The legal system in Ireland is a combination of statute and common law in which a large emphasis is placed on precedent.
The principal statutes governing insolvency law in Ireland are as follows:
a the Companies Acts 2014, which came into operation on 1 June 2015, consolidating and replacing the previous Companies Acts;
b Council Regulation (EC) No. 1346/2000 (referred to when a debtor has its centre of main interests (COMI) in an EU Member State) (the Insolvency Regulation);2
c the National Asset Management Agency Act 2009 (relevant from the perspective of statutory receivers appointed by the National Asset Management Agency); and
d the Irish Bank Resolution Corporation Act 2013 (which introduced the concept of Special Liquidation) (the IBRC Act).
Remedies in the area of insolvency and bankruptcy have traditionally involved enforcement of security, realisation of a debtor's assets and the penalisation of resisting debtors. In recent years, however, there has been a subtle shift towards a 'rescue culture' in respect of certain companies. This has been motivated by a desire to achieve value for all stakeholders.
For those businesses that are in difficulty but can demonstrate that they have a reasonable prospect of survival3 examinership remains an attractive model for formal corporate restructuring and recovery. Examinership is a rehabilitative procedure that, broadly speaking, is a hybrid of Chapter 11 in the United States and administration in England and Wales.
Many businesses in Ireland borrowed significantly from 2000 to 2008 and much of that borrowing was used to fund property acquisitions. From 2008 onwards, there was a prevailing policy of enforcement by the lending institutions in respect of businesses and individuals who have breached covenants in their agreements. The lending institutions are taking enforcement steps in two ways: by the appointment of receivers to secured property or by issuing proceedings in the Irish courts to obtain judgments against defaulting debtors (or both). Over the past few years, large tranches of distressed loans and associated security have been purchased by venture capital and private equity funds. Even as the Irish economy has recovered, a significant amount of this distressed debt remains.
iii Insolvency procedures
The formal insolvency and rescue procedures available in Ireland to wind up or rescue companies are:
a creditors' voluntary liquidation;
b compulsory or court liquidation;
c examinership; and
d statutory scheme of arrangement.
Receivership is a distinct enforcement remedy available to secured creditors only and does not involve the commencement of insolvency proceedings. The Companies Acts recognise and protect the rights of secured creditors to enforce their security in accordance with its terms, and secured creditors can, as a general rule, enforce or realise their security outside an Irish winding-up process.4
Creditors' voluntary liquidation
To commence a creditors' voluntary liquidation (CVL), the company, acting through its members (in general meeting), resolves that it cannot, because of its liabilities, continue in business and that it should be wound up voluntarily.5
The members' meeting at which the winding-up resolution is passed must be held on the same day or the day before a meeting of the company's creditors.6 The winding up commences once the members' resolution has been passed and, thereafter, the company must cease to carry on its business except insofar as is necessary to facilitate the liquidation. The creditors almost entirely control the CVL process, although any interested party can apply to the Irish High Court (the High Court) for directions to determine any question arising during the course of the winding up.7
Robin McDonnell is a partner and Saranna Enraght-Moony and Karole Cuddihy are associates at Maples and Calder.
2 On 20 May 2015, the European Parliament adopted a recast version of the Insolvency Regulation, which will apply with effect from the second anniversary of its coming into force (i.e., approximately June 2017) to all insolvency proceedings opened thereafter.
3 This is a threshold enshrined in Section 509(2) of the Companies Act 2014.
4 Section 440 of the Companies Act 2014 provides that holders of floating charges are subordinate to the claims of preferential creditors set out in Section 621 of the same Act.
5 Section 590 of the Companies Act 2014.
6 Section 587 of the Companies Act 2014.
7 Section 631 of the Companies Act 2014.
Originally published by Law Business Research.
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