Recent legislation allows smaller firms to seek Examinership in the Circuit Court, making it easier and more cost-effective for SMEs to restructure.
The Government doesn’t often give struggling small businesses a Christmas president, but new legislation signed by Michael D Higgins on Christmas Eve will come as a boon to many. After a lot of pressure from lobby groups, the Companies (Miscellaneous Provisions) Bill sets out a framework for a kind of ‘examinership light’, giving firms access to court protection from creditors without forcing them to go through the expensive High Court process.
What it Means
For many companies, Examinership provides the best way to negotiate with creditors, review contracts and devise a rescue plan that keeps the business running as a growing concern. Historically, however, the procedure has come with the rather large downside of legal fees: it is extremely difficult to go through a High Court Examinership for less than five figures, and processing a complicated case can end up costing nearly €1m. For a business that is already struggling, such a large cost will often make a bad situation irretrievable.
Moving the venue for smaller firms seeking Examinership to the circuit court has an instant impact: for one, the Government estimates that legal fees are at least 30% lower in the lower court. The change in venues will also lead to less pressure on the overworked high-court system, and hopefully lead to speedier processing times for both large and smaller cases.
There are, of course, certain conditions attached to the rules: a large firm can’t avail of the cheaper Examinership process. To be eligible for Circuit Court Examinership, a company needs to meet two of three conditions. These are a balance sheet of €4.4m or less, a turnover of €8.8m or less, and a workforce of 50 or under. These broad and flexible criteria should allow most struggling small businesses to seek court protection rather than proceeding straight to insolvency.
Another provision of the bill will make a smaller impact, but should benefit just about every company. Under previous legislation, when filing accounts at the Companies Registration Office, both a director and the company secretary must sign a statement to verify that the accounts are a true copy. However, the new legislation allows type signed accounts to be electronically filed using the online CORE system. It’s not a huge cut in the volume of red tape faced by businesses, but every little helps!
Here at DCA, we have been advising our clients about the impact of the bill on their day-to-day business. We also help companies facing difficulties to determine their best course forward, whether this is through restructuring or insolvency. To set up an initial, no-obligation meeting to discuss your situation and your options, simply contact us.