1. Market Trends and Developments
1.1 The State of the Restructuring Market
Generally there has been a decrease in the number of corporate insolvencies in Ireland over the last five years, which is in contrast to the period from 2008 to 2013, when there were a significant number of corporate insolvencies arising out of the global recession.
Figures prepared by Deloitte Ireland published for H1 2018 show a decrease of 4% in corporate insolvencies compared with H1 2017. Formal restructurings (examinerships) remain level for the same period compared with H1 2017.
The sectors most seriously affected remain the construction, services and retail industries.
It is expected that there will be significant disruption to industries arising out of the uncertainties created by Brexit, given the interrelated nature of Ireland and the UK. The manufacturing, retail and tourism industries are the most at risk in that regard.
1.2 Changes to the Restructuring and Insolvency Market
There has been a lot of activity in recent years in terms of non-performing loan sales from the major financial institutions (as they recalibrate their respective balance sheets) to mostly private equity players. The upshot of that activity is that this firm is still seeing more than its fair share of distressed debt and insolvency litigation cases, which might surprise onlookers in terms of where Ireland stands generally speaking in the economic cycle. If the commercial list of the High Court is seen as a fairly decent barometer for trends in commercial litigation in Ireland, the firm still sees approximately 50-60% of applications for entry to that list, involving non-performing loan (NPL) related litigation. A lot of cases that would have been taken or progressed earlier were deferred or stayed while the loans and security were sold so there are still cases emerging or progressing as the new NPL holders deal with their loan portfolios.
2. Statutory Regimes Governing Restructurings, Reorganisations, Insolvencies and Liquidations
2.1 Overview of the Laws and Statutory Regimes
The governing piece of legislation in Ireland applicable to corporate restructurings and insolvencies is the Companies Act 2014 (the "Companies Act"), which came into effect on 1 June 2015. It represents a significant reform of Irish corporate law, codifying and modernising approximately 50 years of case law and diverse legislation.
2.2 Types of Voluntary and Involuntary Financial Restructuring, Reorganisation, Insolvency and Receivership
The main types of proceedings in Ireland are liquidations, examinerships, receiverships and schemes of arrangement, which are individually dealt with below.
2.3 Obligation to Commence Formal Insolvency Proceedings
There is no obligation under Irish law on a company or its directors to take steps to place the company into an insolvency process within a specific timeframe when a company is insolvent. However, Irish case law makes it clear that directors of a company (in or heading towards insolvency) have a duty to act in the best interests of the creditors of a company as a whole, as opposed to the company's members. Frequently it will be the case that having recognised the insolvency, the directors have no alternative but to recommend to the shareholders that the company be placed in liquidation so that the remaining assets can be realised for the benefit of the creditors and distributed in accordance with the Companies Act. However, this is not always the case. There will be circumstances in which better value and a more favourable outcome can be achieved by an attempt to rescue the company, whether by trading forward in the expectation of a full recovery (with or without the appointment of an examiner, which is Ireland's corporate rescue process) or by endeavouring to realise the assets on a going-concern basis in the hope of achieving an outcome more favourable than could be achieved in liquidation. Therefore the cut-off point will very much depend on the picture on the ground.
2.4 Procedural Options
As stated in
2.3 Obligation to Commence Formal Insolvency Proceedings
, there is no statutory obligation on the company to file insolvency proceedings. However, the directors will be conscious of their duties and of the risks of trading while insolvent.
2.5 Liabilities, Penalties or Other Implications for Failing to Commence Proceedings
There are no mandatory insolvency proceedings in Ireland. However, the possible implications for the directors of the company for failing to commence insolvency proceedings are serious and include being held personally liable (without limitation of liability) for a company's debts if found liable for reckless and/or fraudulent trading.
2.6 Ability of Creditors to Commence Insolvency Proceedings
Creditors can commence the following proceedings.
- Court liquidations: creditors serve a statutory demand on the company. If this demand is not satisfied within 21 days of service, the creditor has locus to petition to have the company wound up on the basis that it is deemed to be unable to pay its debts.
- Examinership: creditors have locus to petition to place the company into examinership, which is a rare occurrence as one of the prerequisites for a petition is the presentation of an independent expert's report that details the financial situation of the company. The creditor would be unlikely in the vast majority of cases to have the requisite information for the independent expert to produce the report.
- Receivership: creditors may appoint a receiver, in accordance with the terms of the security documentation. This is an out-of-court process.
2.7 Requirement for Insolvency to Commence Proceedings
For each of examinership, creditors' voluntary liquidation and court liquidations, it is a requirement that insolvency be established. This is defined by reference to balance sheet and cash flow insolvency.
3. Out-of-court Restructurings and Consensual Workouts
3.1 Consensual and Other Out-of-court Workouts and Restructurings
While undoubtedly a more cost-effective process, the disadvantage of a non-judicial process from a company point of view is the inability to pressure creditors into agreeing to a restructuring via a cross-class cramdown.
Banks, credit funds and other lenders are generally supportive of borrower companies experiencing financial difficulties pending a detailed assessment of their financial position, provided that there is clear engagement and communication between management and lenders.
Where the significant creditors are landlords or Revenue (Irish tax authorities), examinership may be a preferable option due to its inherent advantages, notwithstanding the costs involved.
There is no requirement for consensual restructuring negotiations before commencement of a formal statutory process in Ireland, nor for directors to file for or commence a statutory process if the company is insolvent.
3.2 Injection of New Money
New money injected in an out-of-court restructuring process is unlikely to obtain super-priority.
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