Examinership may not lead to loans being automatically written down

BANKS WILL not automatically have to write down the value of secured loans in cases where their clients have gone into examinership, according to a leading insolvency lawyer.

Examinership is a corporate rescue mechanism in Irish law that gives insolvent companies protection from their creditors for up to 100 days while they work out a means of saving the business.

A settlement, known as a scheme of arrangement, is agreed with creditors and approved by the High Court at the end of the process. At the weekend, solicitor Tony O'Grady of Matheson Ormsby Prentice, told The Irish Timesthat as a result of recent examinership cases, banks and commercial lenders were concerned that the process could effectively force them to write down the value of commercial loans secured against companies' assets.

However, Mr O’Grady, an insolvency practitioner, pointed out that if the scheme of arrangement changes the terms of a secured loan, this has to be agreed by creditors. He stressed that the law does not allow the courts to approve any scheme that will unfairly prejudice the rights of any creditor.

Mr O’Grady added that this would prevent situations where banks could be forced to write down the value of a secured loan to a business and then remain on as a lender to the company.

Last month, Birchport Ltd, owner of the Ocean Bar in Dublin, had a €1.37 million secured loan from ACC Bank written down to €950,000 under the terms of a scheme of arrangement drawn up when it was in examinership.

A number of developers who have taken loans against commercial property are said to be considering the option of asking the High Court to place their companies in examinership.

Companies can be placed in examinership where they are insolvent but still have a reasonable chance of survival.