There is an expectancy of an increase in this area, together with a rise in distressed mergers and acquisitions activity, writes William Greensmyth of Walkers Ireland.
Corporate insolvency rates have been relatively low during the pandemic, but as government support measures fall away, there is an expectancy of an increase in corporate restructurings, together with an increase in distressed M&A activity.
In addition, continued disruptions to the supply chain, increased interest rates and inflation risk, difficulties in retaining and attracting talent, an expected drop in consumer discretionary spending and spiralling energy costs will all have a huge impact on Irish companies throughout 2022.
Fortunately, Ireland is well resourced with formal restructuring processes which companies can avail of and excellent, commercially minded accountants and lawyers to steer companies through those processes.
Of particular interest for SMEs will be the initial applications of the recently enacted Small Company Administrative Rescue Process (SCARP). Both companies and advisors will want to ascertain whether SCARP offers a viable, lower cost process to reach consensual restructurings with creditors and result in a reduced debt burden on the companies involved.
Briefly summarised, SCARP is an out of court process which involves a process adviser being appointed by the directors of a company to engage with the company's creditors and to formulate a rescue plan for the company, although the company will continue to be managed by its directors.
There is no automatic protection for the company under SCARP, but the process adviser can apply to court for an order prohibiting certain steps being taken against the company after their appointment. Such steps include the prevention of proceedings being initiated against the company or the enforcement of security over the company's property.
The process adviser is required as soon as practicable after preparing a rescue plan (and no later than 49 days post-appointment) to call meetings of the various classes of creditors and shareholders to vote on the rescue plan. That plan could include new investment from third parties as a condition of the plan.
If at least one class of impaired creditors have voted in favour of the rescue plan, then it is approved. The relevant threshold at any class meeting is at least 60 per cent in number representing a majority in value of creditors represented at the meeting.
The rescue plan becomes binding on all creditors 21 days after the notice of approval is filed with the relevant court office, provided no objection by a creditor is filed within this period. The grounds of such objection focus on issues of unfairness or impropriety in the formulation of the plan. Where a creditor files a notice of objection, the burden of proof is on the process adviser to establish to the court that the objection of the creditor should not be upheld.
If the objection is upheld by the court, the court may order that the rescue plan be modified.
For companies whose finances exceed the criteria to avail of SCARP, examinership remains an option. With the benefit of over thirty years of successful court-supervised restructurings, a wealth of caselaw and an experienced judiciary, it remains one of the most viable restructuring tools, not just in Ireland, but also in a cross-border context.
In this regard, I anticipate that Ireland will remain a key hub for cross-border restructurings following on from Ballantyne Re, Nordic Aviation Capital and Norwegian Air in 2020 and 2021.
Finally, further legislative reform in the area of corporate restructuring is expected later in 2022 as Ireland meets its obligations to implement into national law Directive (EU) 2019/1023, more commonly referred to as the Preventative Restructuring Directive.
Ireland availed of a one year extension to July 17, 2022 for the implementation of the Preventative Restructuring Directive, and while many of its provisions are already provided for under our existing examinership legislation, there will likely be consequential amendments to examinership which advisors will need to be alert to in the latter half of 2022.
This article was first published in the Sunday Business Post on March 13, 2022.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
