Insolvency news

The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations (Northern Ireland) 2021 which came into effect on 25 June 2021 imposes additional obligations on connected person purchasers in administrations. These legislative changes mean that changes need to be made to Statement of Insolvency Practice 16 - Northern Ireland (SIP 16) – pre packaged sales in administrations, and additionally the Statement of Insolvency Practice 13 - Northern Ireland (SIP 13) - disposal of assets to connected parties in an insolvency process, also need to be changed to align the content of the standards with the law. No changes have been made to the SIPs other than those required by the change in the law. The Joint Insolvency Committee has amended SIP 16 to remove references to the Pre Pack Pool and to replace them with reference to the statutory obligation placed on a connected person purchaser to obtain the opinion of an evaluator. The regulations apply to transactions that take place within 8 weeks of the appointment of an administrator. This extends the scope of the regulations beyond pre pack administrations to all administrations within that time frame. That means equivalent changes had to be made to SIP 13 as it applies to any connected party transaction in an insolvency process. The new SIPs will apply effective from 25 June 2021.

The CCAB-I Insolvency Committee has today published Technical Alert 03 2023 Changes to examinership regulations. This Technical Alert provides updates on significant changes to the examinership process following the introduction of The European Union (Preventive Restructuring) Regulations 2022 (SI 380/2022) and outlines a number of the key amendments to Companies Act 2014 arising from the transposition of EU Directive 2019/1023.

The CCAB-I Insolvency Committee has recently published Technical Alert 01/2023 Help sheet for Insolvency Practitioners on the impact of Sanctions. This help sheet provides information on the legal obligation not to transfer funds or make funds or economic resources available, directly, or indirectly, to any person or entity that has been sanctioned under EU financial sanctions. It also provides some examples of exposure risks for Insolvency Practitioners and how to mitigate such risks.

The CCAB-I Insolvency Committee has recently made a submission to the Department of Enterprise, Trade and Employment on their call for views in response to the proposal for an EU directive harmonising certain aspects of insolvency law. This submission which is available to read here was generally supportive of further harmonisation of existing avoidance actions across the EU.

The Institute recently hosted a webinar on Options for directors in financial difficulty. It outlined directors’ duties and obligations when a business is in financial difficulty, and possible consequences for directors for not adhering to those duties and obligations. There was also discussion on the recent insolvency related changes to Companies Act 2014 on the expansion of directors’ duties and a Q&A session. The recording can be accessed here.

The Corporate Enforcement Authority (CEA) has recently published an Information Note on the topic of Early Warning Tools and Restructuring Frameworks. The CEA states that the purpose of the document is to provide assistance to company directors in understanding certain aspects of the European Union (Preventive Restructuring) Regulations 2022. Specifically, the Information Note has been prepared with a view to assisting company directors to understand the importance of maintaining adequate accounting records, what is meant by a company being in financial difficulty, being unable to pay its debts and being insolvent respectively, specific aspects of company directors’ duties where a company is in financial difficulty, and the potential consequences of non-compliance with company directors’ duties. You can read the CEA news item on the Information Note here, the Information Note can be accessed here and a feedback statement from the CEA on the public consultation can also be accessed.

The Institute recently hosted a webinar on SCARP - what we know so far with guest speakers Des Gibney of McStay Luby and Hilary Larkin of Mazars. The webinar discussed the SCARP process, how to prepare for it, what to look out for and key matters to be aware of when considering it. It explored some practical issues including how SCARP is working in practice, dealing with creditors and what your balance sheet may look like before entering the process versus afterwards. A recording of the webinar is available here.

The CCAB-I Insolvency Committee has recently responded to the Corporate Enforcement Authority’s public consultation on the draft Information Note on Early Warning Tools and Restructuring Frameworks. The response is available to read here. 

The Consultative Committee of Accountancy Bodies - Ireland (CCAB-I) Insolvency Committee has recently updated the Technical Release 02/2019 General Data Protection Regulation – Guidance for Insolvency Practitioners. The main updates are to reflect the impact of Brexit and other updates since it was originally issued in early 2019.

Insolvency practitioners in particular and other readers may find of interest the recent judgment of Butler J in the Irish High Court in the case of Bayview Hotel (Waterville) Limited (the “Company “) and the Companies Act 2014. The judgment can be accessed free of charge on the BAILII website by clicking the link to the judgment. There were two opposing groups of creditors of the Company. The petitioner applied for the Company to be wound up on grounds set out in the Companies Act, 2014 either of being unable to pay its debts (under section 569(1)(d)) or on the basis that the court is of the opinion that it is just and equitable to wind the Company up (under section 569(1) (e)). There was much dispute as to the business dealings of the two opposing groups and poor records of transactions and prior recollections were given little weight by the judge in the case. Some considerations which may be of interest in the case include: The position of a creditor who opposed the winding up petition to speak on behalf of the Company. This creditor was also a director of the Company. The judge said that this creditor personally had much to gain if the court were to accept the arguments that he now purports to advance on behalf of the Company. In the circumstances of board deadlock between rival interests and a dispute about ownership of shares it would not be in the interests of justice to allow one of the two competing factions to speak on the Company’s behalf. A review of the law as to whether or not the Company was able to pay its debts. The court set out the test for insolvency: is the Company able to pay its debts as they become due? On a review and application of the law to this case the judge was satisfied that the Company was unable to pay its debts within the meaning of S 569(1)(d) of the Companies Act, 2014. Winding up on the just and equitable ground. The court was satisfied that the company could be wound up because it was unable to pay its debts. Therefore, it was not necessary for the judge to give a decision on winding up on the just and equitable ground. However, she outlined her views which are obiter and persuasive only, in case the matter was taken further. She said that in the circumstances there has been a complete falling out between the parties, there was deadlock on the board of directors and there is no evidence that agreement could be reached on the voluntary sale of the hotel. The judge said she would be minded to also grant the petition to wind the Company up on the just and equitable ground. The judge also gave some consideration to the exercise of discretion by the court and made reference to some recent Irish caselaw in the matter. These pages are provided as resources and information only and nothing in these pages purports to provide professional advice or definitive legal interpretation(s) or opinion(s) on the applicable legislation or legal or other matters referred to in the pages. If the reader is in doubt on any matter in this complex area further legal or other advice must be obtained. While every reasonable care has been taken by Chartered Accountants Ireland in the preparation of these pages, we do not guarantee the accuracy or veracity of any statement, resource, guidance, information or opinion, or the appropriateness, suitability or applicability of any practice or procedure contained therein. Chartered Accountants Ireland is not responsible for any errors or omissions or for the results obtained from the use of the resources or information contained in these pages.  

The European Union (Preventive Restructuring) Regulations 2022 (SI 380/2022) were signed by the Minister for Enterprise Trade and Employment on  27 July 2022.In the following paragraphs they are referred to as the “2022 Regulations”. The 2022 Regulations were issued for the purpose of giving effect to EU Directive 2019/1023 (the “Directive”).The meaning of certain definitions or phrases used in the 2022 Regulations can be found in the Directive. The 2022 Regulations amend certain provisions of the Companies Act 2014.Please refer to the 2022 Regulations and the Directive for full details and we set out some of the key provisions below. Perhaps the most noteworthy change is to voting rights of creditors. The 2022 Regulations provide that creditors or classes of creditors whose interests or claims will not be impaired by the examinership proposals will not have voting rights. This is a significant change to the position before the 2022 Regulations came into force and it means that for example an unsecured creditor which would be in line to get nothing in a liquidation is now precluded from voting rights. In the words of the Directive (Article 9 (2)), parties that are not affected by a restructuring plan shall not have voting rights in the adoption of that plan. The 2022 Regulations provide that Directors who believe that a company is or is likely to be unable to pay its debts must have regard to the interests of creditors. This is a duty owed to the company (only). The 2022 Regulations also impose an obligation on directors to have regard to the interests of the company’s creditors where the directors become aware of the company's insolvency. Early warning tools. A new section is added to the Companies Act 2014 by the 2022 Regulations providing that a director may have regard to early warning tools. The new section states what an early warning tool is. Readers may also refer to the Directive for further references to early warning tools. Section 509 of the 2014 Act is amended so that now an individual who is to be appointed as examiner in a case which includes a cross border element must show sufficient experience and expertise to perform the role. The section in the 2014 Act which imposes a stay of proceedings by creditors is amended by the 2022 Regulations which carves out employee claims so that they may commence or advance certain actions or proceedings even though the company is under the protection of the court. A new section is added preventing creditors withholding performance of, terminating, accelerating or otherwise modifying executory contracts on the basis of a company’s examinership and /or inability to pay monies owing. Section 529 which protects certain liabilities as expenses properly incurred is amended. The new provision makes certain provision for those liabilities where the company is wound up within 6 months of the end of the protection period. The 2022 Regulations clarify that the maximum time period of court protection is one year. It also makes some changes in respect of the validity of a floating charge in certain circumstances and in relation to an unfair preference. Readers may find the following articles of interest in relation to the changes: Department of Enterprise, Trade and Employment - European Union (Preventive Restructuring) Regulations 2022 Information Note - DETE (enterprise.gov.ie)   DLA Piper Global Law firm  Examinership Modified: Ireland Transposes the Preventive Restructuring Directive into Law | Insights | DLA Piper Global Law Firm Arthur Cox LLP. Directors’ duties: new statutory duties to have regard to the interests of creditors - Arthur Cox LLP Addleshaw Goddard LLP  Creditors’ Interests at the Forefront of New Directors’ Duties | Addleshaw Goddard LLP Eversheds Sutherland LLP Preventive Restructuring Directive Modifies Examinership Procedure- Publications - Eversheds Sutherland (eversheds-sutherland.com) Byrne Wallace LLP Changes to the Irish Examinership Regime: Transposition of EU (Preventive Restructuring) Directive - ByrneWallace LLP Fieldfisher - Preventative Restructuring Regulations – Changes to the Examinership Process | Fieldfisher Matheson LLP - Preventive Restructuring Directive Takes Effect in Ireland (matheson.com) Please also see the International Monetary Fund technical note on insolvency and creditors rights which analyses select aspects of the system  for insolvency and creditors’ rights in the context of an overall assessment of the Irish financial sector.   These pages are provided as resources and information only and nothing in these pages purports to provide professional advice or definitive legal interpretation(s) or opinion(s) on the applicable legislation or legal or other matters referred to in the pages. If the reader is in doubt on any matter in this complex area further legal or other advice must be obtained. While every reasonable care has been taken by Chartered Accountants Ireland in the preparation of these pages, we do not guarantee the accuracy or veracity of any statement, resource, guidance, information or opinion, or the appropriateness, suitability or applicability of any practice or procedure contained therein. Chartered Accountants Ireland is not responsible for any errors or omissions or for the results obtained from the use of the resources or information contained in these pages.    

Section 819 of the Companies Act 2014 (2014 Act) relating to the restriction of directors of insolvent companies has recently been amended as a result of the commencement of the Companies (Corporate Enforcement Authority) Act 2021 (CEA Act). Section 34 of the CEA Act has added additional grounds for application to court by the Corporate Enforcement Authority (CEA), a Liquidator or a Receiver to restrict a director including failure by a director of an insolvent company to: convene a general meeting of shareholders for the purpose of nominating a named Liquidator, table a notice to nominate such Liquidator, or provide the required notice to employees of the company in the winding up of the company.  Some of these changes were brought about by a Company Law Review Group report in 2017 on the protection of employees and unsecured creditors. These changes were recommended to address difficulties where directors do not put a company into liquidation or walk away without a Liquidator being appointed. Additional insolvency-related changes to the 2014 Act, following the commencement of the CEA Act, include: the CEA has power to request evidence from a person that they are qualified to act as Liquidator of an Irish company (section 32 CEA Act); restoration of the obligation to file resolutions with the CRO in a creditors' winding-up (section 31 CEA Act); and if a liquidation is not concluded within 12 months after commencement, a Liquidator may be required to file more frequent reports to the CRO on the progress of the liquidation (section 33 CEA Act).