Courts to tighten up criteria for company examiner

Financially troubled businesses will find it harder to get the courts to agree to the appointment of an examiner following changes to Company Law. The 1999 Companies (Amendment) Bill will also relieve small businesses of having to produce audited account and introduces tougher registration requirements and penalties aimed at stamping out the abuse of Irish registered non-resident companies.

Under the new legislation, companies which run into financial difficulties will have to satisfy more onerous requirements before the courts will agree to appoint an examiner. At the moment, company directors can petition the courts to appoint an examiner to run the business on an interim basis once they can prove there is "some prospect" it can survive.

The amendment now states that an examiner can be appointed only where the court is satisfied that there is a "reasonable prospect" for the company's survival. This will have to be supported by a report from an independent accountant. The changes also bring good news for the banks, strengthening their position as a creditor by allowing financial institutions to establish their net exposure where a creditor has operated a number of separate bank accounts. Any new suppliers to the company put into examinership will have less security though in relation to getting paid for their services. Commenting on the changes, Mr Ray Jackson, partner at accountants KMPG, said it will be advising its clients to seek payment in cash in the future for goods and services provided to companies in examinership.

Mr Jackson believes the changes affecting examinership will dramatically reduce the options open to companies in a dire financial situation.

"The changes are broadly very good and will strengthen the examinership process," he stated. At the moment around 60 per cent of companies which go into examinership eventually fail. The new legislation also aims to relieve the administrative and cost burden to small companies in complying with Company Law. Companies with a turnover of less than £100,000, with a balance sheet worth less than £1.5 million and employing under 50 people will no longer have to have their annual accounts audited.

Under the new arrangements, the directors of an IRNR must demonstrate that the company intends to carry out its activities within the State. Each company will be required to have either an Irish resident director or provide a bond to the value of £20,000 as a surety against any failure to comply with Company Law and tax requirements. This will apply to new companies and to existing companies after a transitional period of 12 months.

The legislation also restricts the number of directorships which any one individual can hold to 25.