Despite the emergency financial supports introduced by Government to alleviate the working capital challenges faced by businesses as a consequence of COVID-19, many will be unable to avoid serious liquidity issues and may well face the risk of insolvency in the coming weeks and months.

In that scenario the directors have a duty to ensure that they do not conduct the business in a manner that prejudices creditors.

As business begins to emerge from lockdown and trade, the conduct of directors will come into sharp focus. Directors run the risk of personal liability being imposed and being restricted or disqualified from acting as a director. In order to discharge their obligations and mitigate risk directors must:

  • Convene frequent board meetings and maintain minutes of those meetings with particular emphasis on recording why the decisions taken are in the best interest of the creditors.
  • Ensure that the company’s books and records are up to date and accurate.
  • Forensically interrogate the company’s current financial position and prepare projections.
  • Document why the directors are of the view that the company will be able to successfully trade through its financial difficulties.
    Obtain independent legal and financial advice regarding whether the decision to continue to trade is reasonable.
  • Prepare regular management accounts.
  • Continuously stress test the financial information and projections that the directors are relying upon.
  • Only pay creditors in the ordinary course of business and be particularly cautious of payments to connected creditors.
  • If any significant transaction is being contemplated obtain legal advice regarding whether the transaction is in the best interest of the creditors.


Unfortunately many businesses that are fundamentally viable may not be able to trade out of their difficulties without restructuring their debt. The best outcomes are achieved on a consensual basis by early engagement with creditors. Having said that businesses considering trying to reach a consensual deal with creditors should prepare on the basis that the consensual approach will not work so that they are in a position to quickly switch track to a Court supervised restructuring process if the need arises.


The possibilities in a consensual restructuring are endless and will depend on the particular circumstances of the business but will usually involve some or all of the following:

  • Renegotiation of terms of key contracts/property leases
  • Renegotiation of terms with lenders
  • Write off of debt
  • Fresh equity
  • Sale of non-core assets
  • Changes in management

Does it Work?

In normal circumstances achieving a consensual restructuring is challenging as it is often difficult to get unanimous buy-in from creditors. However, given the huge economic uncertainty that COVID-19 has created creditors are far more likely to agree a deal.


There are two particular benefits to consensual deals. They are less costly and are confidential. Legal and financial costs will of course be incurred in a consensual restructuring but are generally significantly less than they would be in a formal Court process. The process is conducted behind closed doors whereas Court processes are conducted in public.


Examinership is a Court rescue process that affords breathing space for a viable but insolvent (or about to be insolvent) business to restructure its balance sheet.

Minimum Entry Requirements

Entry to the process is not a forgone conclusion. The Court can only appoint an Examiner if (i) the company is insolvent or about to become insolvent and (ii) there is a reasonable prospect of survival of the company and its undertaking as a going concern. The impact of the COVID-19 crisis is likely to present particular challenges in relation to this latter test. While not a specific requirement, the preservation of employment is generally a significant factor in the Courts decision as to whether or not to allow a company enter Examinership.

Key Features

  • From the date of the Court petition the company has protection from its creditors for 70 days (this can be extended by the Court for a further 30 days).
  • In virtually all cases the directors continue to run the business although the Examiner can apply to Court to assume executive control.
  • The examiner controls the restructuring and will formulate a plan to rescue the business. This typically involves fresh investment and a write down of debt. It is also possible to repudiate contracts, including property leases as part of the process
  • The Examiner must convene meetings of the different classes of shareholders and creditors to consider the Examiner’s plan. The Examiner’s plan must be approved by at least one impaired class of creditors – meaning more than 50% in number representing more than 50% in value of the claims represented at the meeting of the class have voted in favour of the Examiner’s plan.
  • Assuming this minimum threshold is met, the Examiner must ask the Court to confirm the plan. There are a number of factors that the Court must take into account before confirming the plan. It must be satisfied that the plan produces a better outcome for the creditors than a liquidation or receivership. Where the Court confirms the plan it is binding on the company, the members and creditors.

Critical Considerations

  • Cash Flow: Working capital is essential to fund the operations of the business during Examinership. The Court will not allow the company into the process if this is not in place. This will represent a particular challenge for businesses affected by COVID-19. While in theory the business can borrow during the process this can be a challenge. It is also a costly process and the business will have to be in a position to fund those costs.
  • A Sound Business: Examinership is a very powerful process that can transform a broken balance sheet but it is not a panacea for a business that is fundamentally unsound.
  • Existing Secured Creditors: While the support of existing secured creditors is not essential, an Examinership is far more likely to succeed with their support.
  • Examinership Fatigue: While the Examiner largely controls the restructuring, significant commitment is required from the directors and key members of staff throughout the process.
  • Change of Ownership: In Examinership, ownership of the company typically changes from the existing shareholders to the new investor and there is very little the existing shareholders can do to prevent that.
  • Personal Guarantees: A successful Examinership does not extinguish personal guarantees.


The Scheme of Arrangement process allows a company to reach an arrangement or compromise with its members or creditors (or any class of them). It was recently used successfully to restructure US$1.6bn of debt in the Ballantyne Re plc. case. This was a highly complex restructuring of financial obligations. The case demonstrates the willingness on the part of the Irish judiciary to adopt a very practical approach to the use of Schemes of Arrangement. The process is probably more likely to be used to restructure financial obligations rather than to restructure trading businesses.

Key Features

  • It is not necessary to demonstrate that the company and its undertaking has a reasonable prospect of survival, as required in the Examinership process. There is no automatic protection from creditors but the Court may stay all proceedings for whatever period it deems fit. The Scheme of Arrangement must be approved by a majority in number and 75% in value in each class. So the threshold of creditor support required in this process is significantly higher than what is required in Examinership. The profile of the creditors, and consequent likelihood of achieving the required creditor approval, will likely be decisive in determining whether a Scheme of Arrangement is an appropriate process in a given case.
  • Following approval by the creditors an application must be made to Court to sanction the scheme.The Court has broad discretion in deciding whether or not to approve the scheme.
  • Unlike Examinership, a Scheme of Arrangement can provide for the release of guarantees if it is necessary to implement the scheme.
Doug Smith

Doug Smith

Partner, Co-Head of Restructuring (Ireland)
Dublin, Ireland

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Deborah Kelly

Deborah Kelly

Partner, Head of Corporate (Ireland)
Dublin, Ireland

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