The Gazette 1992

GAZETTE

SEPTEMBER 1992

the survival of the group and the

Examinership was therefore

terminated.

Clearly, if the banks maintain this

attitude it will be extremely difficult

for any company which requires an

immediate cash injection in order to

trade to survive, even during the

examinership period. In the absence

of some form of State-assisted

funding (from perhaps a re-

constituted version of Foir Teó) this

practical expression of opposition by

the banking institutions to the

examinership legislation may render

the appointment of an Examiner

futile, unless a company can survive

without borrowing for a period of

some weeks.

"This practical expression of

opposition by the banking

institutions to the examinership

legislation may render the

appointment of an Examiner

futile, unless a company can

survive without borrowing for a

period of some weeks."

But even within the terms of the Act

as it now stands there are ways in

which a secured creditor can go

some way towards protecting its

position. Before a petition for the

appointment of an Examiner is

presented, a secured creditor can

appoint a receiver - and section 3

(6) (as amended) of the Act indicates

that a court shall not give a hearing

to such a petition if a receiver stands

appointed, and has so stood

appointed for a continuous period of

at least three days prior to the

presentation of the petition. One can

certainly envisage an increase in the

number of receivers appointed on a

Friday - though this in itself is

obviously not foolproof.

A secured creditor will often be

critical of the management of the

company, and may be unhappy that

the same personnel will continue to

run the company both during and

after the examinership. There is

nothing to prevent a secured creditor

from attempting to persuade an

Examiner to apply under section 9 to

court to have all the functions and

powers of the directors performed

only by the Examiner. Indeed, it is

arguable that such a secured creditor

could apply itself to court as an

interested party if the Examiner

failed or refused to apply, where the

affairs of the company were being

conducted in a manner likely to

prejudice the interests of

the company, its employees or

creditors as a whole under section 13

(7).

Secured creditors are also entitled to

be heard at any hearing by the Court

of the Examiner's proposals for a

scheme of arrangement under

Section 24 if their claims as creditors

would be impaired if the proposals

were implemented. As a secured

creditor will almost certainly be

receiving less than its full claim

(including e.g. interest) under the

proposals, its claim is clearly

"impaired".

Creditors may choose

to oppose the proposals completely.

In a recent decision, however, the

court modified a scheme of

arrangement proposed so that

directors would not be released from

the personal guarantees given by

them to a bank, and further ordered

that two directors would cease to act

as directors of the company

henceforth.

This type of

modification preserves the liability

under personal guarantees of

directors and other such persons

which would otherwise be effectively

extinguished after the confirmation

of proposals under section 24 (6). It

may also be encouraging for a

creditor to know that the power of

the court to modify proposals for a

scheme of arrangement can be used

to remove officers whose conduct

has been unsatisfactory or lacking in

candour.

It is now clear also that even at the

early stages of the presentation of

the petition, failure by the petitioner

or its advisers to exercise utmost

good faith or to disclose all material

facts may amount to an abuse of the

process of the court (particularly

where the application is made on

evidence known to be false, or for

an improper purpose). In another

recent decision

Costello J. held that

such an abuse of the process of the

court could lead to the court

refusing to sanction a scheme of

arrangement. Commenting on the

potential injustice involved in the

making of a protection order when

the proper course is to wind up the

company, Costello J expressed the

view that an Examiner should have a

duty imposed upon him to consider

whether any of the evidence placed

before the court at the petition stage

was misleading in any material

respect, and to re-enter the matter

before the court if this is the case.

Costello J's judgment in that case

also makes it clear that proposals for

a scheme of arrangement will be

scrutinised extremely carefully, and

any ambiguities or inconclusive

arrangements for the future of the

company may prove fatal to such a

scheme. In particular, the chances of

a scheme being approved by the

court are greatly jeopardised if

adequate provision is not made for

(among other matters) the future of

the employees of the company - a

scheme of arrangement is not to be

regarded as being simply an

investment opportunity in an ailing

company.

Conclusion

The court clearly has a wide

discretion in deciding whether or not

to appoint an Examiner, although a

petitioner may well wonder whether

it is "worthwhile" if a company

which requires immediate funding

has no prospect of raising money.

But the examinership procedure

involves a balancing of the rights of

all creditors, not just secured

creditors. There is much scope within

the Act for a creditor to seek to have

considerable restraints imposed on a

company (and its officers) without

having to condemn the company to

financial death. Insofar as the

decision in

Atlantic Magnetics

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