Saving small firms
When the High Court appoints an examiner to an insolvent company, this allows time – 70 days at least – for the company to restructure its operations and, hopefully, later to leave the examinership process, and resume trading. But not every company entering examinership does exit successfully. And, of those that do, some may subsequently fail. One such was Peats World of Electronics, which this week ceased trading, a year after it had left examinership. Its demise has raised questions about the examinership process, as Peats joins some 20 other companies that have also failed soon after completing successful examinerships under High Court supervision.
Those to benefit from the temporary court protection that examinership affords have included Eircom, and more recently larger retailers, Homebase and B&Q. But how suitable is examinership for smaller companies, given the financial costs involved, and the expensive requirement of High Court supervision?
Before the High Court agrees to appoint an examiner, it must be satisfied the company has a reasonable prospect of survival at the end of the examinership term. Last year, members of the Peat family, to help ensure the survival of Peats, invested more money in the company, and waived some rent payments. The rescue plan approved by the court envisaged the company breaking even this year. But in a depressed retail market, the anticipated recovery did not happen. And Peats failed, at a heavy cost to the company’s shareholders .
Are the current examinership provisions best suited for small companies, given the high costs involved? Next year, the Circuit Court will supervise the examinership process. And this will make it easier, cheaper and more convenient for small companies in difficulty to avail of examinership. At a time when many more such companies may well require the temporary court protection that examinership provides, further changes in company law are necessary to meet the needs of that sector.