The Gazette 1992

GAZETTE

SEPTEMBER 1992

creditors; the legislature does not

appear to have intended one or more

large creditors (even if secured) to be

able to frustrate any such protection

granted to a company.

"The purpose of the Act is to

provide a "breathing space" for

the company . . . the legislature

does not appear to have intended

one or more large creditors to . . .

frustrate such protection . . . "

Background

The company manufactured discs,

components and other electronic

products, employing a workforce of

170 people. While its export business

had grown in Europe, it had

sustained losses due to squeezing of

margins and increased competition

from non European Community

manufacturers. The customer base of

the company was fairly strong and

interest in investing in the company

had been expressed by foreign

manufacturers. West Deutsche

Landesbank (Ireland) Limited ("the

bank") held a fixed and floating

charge over all the assets of the

company, including a fixed charge

over the book and other debts of the

company and the proceeds of such

book and other debts. In October,

1991 the company's indebtedness to

the bank was in excess of £2 million.

Pursuant to its debenture the bank

appointed a receiver to the company

on 18 October, 1991. A petition

seeking the appointment of an

Examiner was presented two days

later by the company. The High

Court appointed an Examiner on 15

November, 1991 and subsequently

made an order enabling the

Examiner to borrow a sum not

exceeding £429,000 for certain

specified purposes for the

continuance of the company, and

declared that the monies so

borrowed and expended should be

treated as expenses properly incurred

by the Examiner, pursuant to section

29 (1) of the Act and should be

repaid in full out of the assets of the

company in priority to any other

claim pursuant to section 29 (3) of

the Act. Both Bank of Ireland and

Barclay's Bank were authorised by a

subsequent court order to have

recourse to funds standing to the

credit of the company in the

company's account in those banks to

make the relevant loan to the

Examiner. Against this last order

Bank of Ireland also appealed, as it

did against an order directing it to

pay out the monies standing to the

credit of the company to the

Examiner made on 25 November,

1991. The Examiner did not oppose

the appeal against the making of the

order on 25 November, 1991.

In the High Court, Lardner J

indicated that in some cases the

evidence may make it clear that the

survival of the company is not a

practical possibility. In such a case

an order appointing such an

Examiner is likely to be refused. In

other cases there may be a strong

possibility of the requisite

adjustment, as a result of which the

company may survive and prosper.

In those circumstances it will clearly

be possible to make an order

appointing an Examiner. There could

however also be circumstances in

which no clearcut conclusion

emerges from the evidence and

indeed there may be conflict between

parties at the hearing of the petition.

In such circumstances Lardner J held

that the standard to be applied by

the Court in deciding whether or not

to appoint an Examiner was whether

on the evidence in all the

circumstances it appeared worthwhile

to order an investigation by an

Examiner into the company's affairs

to see if it could survive, there being

some reasonable prospect of

survival.

The Supreme Court approved this

test. Finlay CJ indicated that he

would qualify the test in a minor

way by requiring only that there be

"some prospect of survival" rather

than there being some "reasonable

prospect".

McCarthy J went even

further and rejected the "real

prospect" test completely.

In his

view it would be difficult to come to

any firm conclusion on the prospects

for survival of the company until the

Examiner had carried out his

preliminary task of examining the

company and furnishing his first

statutory report to the court within

the three weeks of his appointment.

Both judgments emphasised that the

petition to appoint an Examiner is

only the first step in a process within

a very short time frame. It is of

course possible that the Examiner

will, when filing his first report

undpr Section 15, express the view

that the whole or part of the

company would not be capable of

survival as a going concern and

indeed that continuing the whole or

part of the undertaking of the

company would be unlikely to be of

more benefit to the members or

creditors that to wind up the

company. In these circumstances the

court will hold a hearing to consider

the matters arising out of such a

report and may even subsequently

order that the company be wound

up.

In such circumstances the

maximum delay in winding up the

company which was not in fact

capable of survival and was insolvent

would only be a three week period in

which the Examiner had time to

compile and file his report to the

court. Indeed, the whole time frame

envisaged under the Companies

(Amendment) Act, 1990 is short

since the process of examination

must conclude within three months

from the date of the appointment

unless it is extended by special order

for a further 30 days. Perhaps the

result of appointing an Examiner

will be to lessen the eventual return

to a secured creditor or indeed the

dividend to an unsecured creditor in

the event that the company does not

survive.. In balancing this possibility

against the possibility that the

company is capable of surviving it

would appear that a short protection

period can at least be afforded under

the Act to the Examiner in order to

allow him to carry out an

examination

of the situation, affairs

and prospects of the company before

expressing a more emphatic view on

its viability for the future.

Unlike the English legislation, the

Act confers an extremely wide

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