The Gazette 1992

GAZETTE

SEPTEMBER 1992

discretion on the court as to how the

power to appoint an Examiner

should be exercised. Indeed the only

guide given appears in Section 2 (2)

where the court is empowered

particularly to appoint an Examiner

if it considers that such an

appointment would be likely to

facilitate the survival of the company

or any part of it as a going concern.

This is clearly not a fetter on the

power to appoint an Examiner -

indeed, Finlay CJ regarded that

section as providing a "strongly

persuasive obligation" to appoint an

Examiner where such an order is

likely to facilitate the survival of the

company.

The English Insolvency

Act 1986, on the other hand, sets

out the particular purposes for

whose achievement an

Administration Order (the equivalent

of the appointment of an Examiner

for these purposes) may be made,

and the order so made must specify

the particular purpose or purposes

for which it is made.

The English

courts have also adopted "the real

prospect" test on a number of

occasions and indeed have sometimes

held that the evidence must enable

the court to hold that the purpose in

question sought to be used by the

making of an Administration Order

will more probably than not be

achieved.

While this approach may

well be an example of judicial self-

restraint, the Irish courts are given a

wide discretion of the exercise of

their powers under the 1990 Act.

An objection made by a secured

creditor of a company to the

appointment of an Examiner may

carry considerable weight - but it

cannot operate as an absolute veto.

McCarthy J was of the view

that

while the appointment of an

Examiner may lessen the eventual

return to the secured creditor, in the

event of the company not surviving,

the damage to other creditors

(perhaps less well equipped to bear

the loss) may be far greater. Indeed

it has been accepted that the

interests of a secured creditor may

weigh far lighter in the scales than

the interests of other creditors when

a court is asked to decide on

whether or not to appoint an

Examiner.

A declaration of the sort

granted in this case enabling an

Examiner to borrow funds despite

the existence of a fixed charge held

over all the assets and book debts of

the company is undoubtedly

irritating in the extreme to any

secured creditor. But the Act clearly

empowers the court to make orders

ancillary to the appointment of an

Examiner including an order vesting

all or any of the functions or powers

of the directors in the Examiner

(presumably including the power to

borrow). It is clear that a declaration

according priority to the repayment

of such funds borrowed because they

were expenses properly incurred by

the Examiner is extremely useful to

an Examiner in attempting to

persuade financial institutions to

advance him monies. He can thus

place before any potential lender the

conditions under which the proposed

borrowing is taking place and the

priority which its repayment would

have in the event of the continued

insolvency of the company.

Implications of The Decision

While not a charter for the

appointment of an Examiner it is

clear as a result of this decision that

in any situation where it would be

considered worthwhile to examine the

prospects of survival of a company,

a court should be extremely slow to

exercise its discretion against a

petitioner who seeks the

appointment of an Examiner and the

protection of the court. Unless there

are exceptional circumstances which

effectively negative the identification

of any possibility for the survival of

the company, a court is likely to

appoint an Examiner at least to

allow an opportunity for the

examination of the prospects of the

company to take place (under the

protection of the Court) over a short

period. Once an Examiner is

appointed (even on an interim basis)

the court will naturally attach weight

to his views, he being an

independent court appointed officer.

Even the appointment of an interim

Examiner may assist a petitioner in

defeating opposition at the hearing

of the petition. A report prepared by

him setting out whether or not he

thinks the company is capable of

survival is helpful and the court, in

making what is essentially a

commercial decision, must

necessarily place considerable

reliance on the views of an

insolvency practitioner in such a

situation.

The appointment of an

interim Examiner is also obviously

essential where the company wishes

to continue to trade. Since such a

company is technically insolvent, it

would not be in a position to make

payments of day to day outgoings

and expenses unless these were

certified at the time of being

incurred as being appropriately and

properly incurred by the Examiner

under section 10 of the Act.

But the decision has found very

considerable disfavour with banks,

and it is not hard to understand

why. A bank which has secured its

loan to a company by taking a

charge over the assets of that

company sees the appointment of an

Examiner as a threat to its security,

since it may well be forced as part of

a court sanctioned scheme of

arrangement to dilute its claim and

be paid only a fraction of what it is

owed. Insofar, therefore, as the

decision widens rather than restricts

the criteria for the appointment of

an Examiner, it was bound to

provoke an adverse reaction from

such institutions. Even more galling

for a bank must be the priority

accorded under section 29 to the

costs and expenses properly incurred

by the Examiner in the course of the

examinership, the payment of which

will take precedence to any other

claim, secured or otherwise, against

the company. Unsurprisingly,

therefore, the criticisms by the

lending institutions of the Act have

intensified since the decision. This

hostility has already manifested itself

in the course of the ill-fated

examinership of the United Meat

Packers group of companies. The

refusal of banks (who were already

secured creditors) to advance further

monies to enable the companies to

survive during the period of

Examinership left the Examiner with

no option but to indicate to the

High Court that continued court

protection was unlikely to facilitate

275