Company rescue costs to fall under fast-track legislation
Move to facilitate Circuit Court examinerships for small firms
Fashion chain A|Wear entered interim examinership this week in an attempt to get the costs of its upward-only leases written down. Photograph: Brenda Fitzsimons
The Government has given the green light for fast-track legislation to facilitate low-cost Circuit Court examinerships for small businesses.
The move could give thousands of heavily indebted, but otherwise viable, firms an avenue to cut their debts without the massive costs associated with a High Court process.
It is also likely to be used by small retailers to cut the cost of their upward-only rents. The legislation could be enacted as early as Christmas.
The new law will be restricted to small companies that satisfy two of the following three conditions: a turnover of less than €8.8 million, balance sheet assets of less than €4.4 million, or that have less than 50 employees.
Examinership is a process to give indebted, but otherwise viable, firms court protection from their creditors while they try to formulate a rescue plan.
It differs from liquidation and receivership, in that the aim of the process is to save the business by writing off some of its debts. It gives companies up to three months of breathing space from their debts in order to try to save themselves.
High Court examinership, which for large businesses can often cost upwards of €1 million in fees, is considered unsuitable for smaller businesses because of the costs, but also because of the complexity of the process.
It has been used most notably recently by Eircom, which slashed €1.8 billion from its debts last year, although the process reportedly cost it a total of €63 million in legal and advisory fees. A|Wear, the ladies fashion chain, entered interim examinership this week in an attempt to get the costs of its upward-only leases written down.
Circuit Court legal fees are at least 30 per cent less than the High Court, as barristers are not required. Sources within the insolvency sector said the impact of the Government’s “examinership-lite” proposal would be dampened, however, unless it went further than just allowing access to the Circuit Court, and simplified the process even more.
One source said that, under the new laws, small businesses would still have to get an independent accounts report stating that they had a chance of survival, and that the costs of this would not come down. The source said that the new law appeared designed only to cut legal fees, but that the accountants appointed as examiners would still have to fulfil the same duties and so their fees may not reduce.
Richard Bruton, the Minister for Jobs and Innovation, secured Cabinet approval on Tuesday to strip the proposal out of the mammoth Companies Bill currently working its way through the Dáil.
That piece of legislation, one of the most complex pieces of business law in the history of the State, could take until 2015 to be enacted. Mr Bruton said yesterday that he expects the new law for low-cost examinerships to be passed by the Oireachtas and enacted by Christmas.
Retail Excellence Ireland, the lobby group that has pushed heavily for “examinership-lite”, yesterday welcomed the news that the legislation had been fast-tracked.
“It is too late for some, but it is great news nonetheless. But judges need to be given absolute clarity in the legislation about the powers to repudiate upward-only leases,” said David Fitzsimons, the chief executive of Retail Excellence.
According to figures released in August by the accountancy firm Kavanagh Fennell, there were 11 examinerships in the first seven months of this year. Hughes Blake, another accountancy firm that specialises in examinerships, contends that three out of every four examinerships are successful.