Restructuring and Insolvency Guide

Ireland

Hayes solicitors LLP

1. Overview of Statutory Regimes Governing Restructurings, Reorganisations, Insolvencies and Liquidations

Ireland has a comprehensive legal framework governing company restructurings, reorganisations, insolvencies, and liquidations. The primary legislation is the Companies Act 2014 (as amended) (the “Act”), which consolidates and reforms previous company law statutes and provides the legal framework for the following processes:

Receivership: This involves the appointment of a receiver by a secured creditor to take control of the company’s assets. Part 8 (Sections 428-441) of the Act.
Schemes of Arrangement: this mechanism provides for court-approved agreements between a company and its creditors or members to restructure the company’s debts or capital. This process can be used for various purposes, including mergers, debt restructuring, and capital reorganisations. Part 9 (Sections 449-507) of the Act.
Examinership: This is a court-supervised process aimed at rescuing insolvent companies. It provides for a rescue period of 100 days and allows a company to restructure its debts and continue trading by way of a court approved scheme of arrangement. Part 10 (Sections 508-558) of the Act.
Small Company Administrative Rescue Process (SCARP): this mechanism was introduced to provide a simplified and cost-effective rescue process for small and micro companies. Similar to Examinership, but with less Court oversight and less costly. Part 10A (Sections 558A-558Z) of the Act.
- Liquidation: This is the process of winding up a company, either voluntarily or compulsorily. Part 11 (Sections 559-724) of the Act.
- Voluntary Liquidation: Initiated by the company itself, either as a members’ voluntary liquidation (solvent) or a creditors’ voluntary liquidation (insolvent).
- Compulsory Liquidation: Initiated by a winding-up application to the High Court order, usually upon the petition of a creditor.
- Provisional Liquidation: A temporary measure where a provisional liquidator is appointed by the court to preserve the assets of the company pending the hearing of a winding-up petition. This is often used to prevent asset dissipation or to maintain the status quo.

2. Out-of-Court Restructurings and Consensual Workouts

2.1 Out-of-Court Financial Restructuring or Workout

There are no defined informal rescue procedures under Irish law. The structure of any informal restructuring is subject to agreement between the company, its shareholders and creditors. In addition, credit agreements do not typically contain terms permitting a majority or super-majority of lenders to bind dissenting lenders to changed credit agreement terms.

Cram-down mechanisms do exist under Irish law, however a formal statutory process is needed to bind dissenters (see heading 4 below).

2.2 Consensual Restructuring and Workout Processes

It is possible to implement an informal work-out in Ireland through consensual arrangements between a company and any one or more of its creditors. Consensual restructuring is attractive to both a debtor and its creditors for reasons of cost, timing and confidentiality.

There is no fixed format under Irish law for negotiating an informal restructuring agreement. Creditor forbearance, in the form of standstill agreements, consensual variations of terms, covenant waivers and/or extensions, may form part of an informal restructuring.

The most common form of consensual restructuring is for the parties to agree a standstill agreement, especially where banks or bondholders are the most significant creditors. A standstill agreement is essentially an agreement between the parties to maintain the status quo for a specified period of time in order for the parties involved to try and negotiate a long-term solution.

Once all key creditors are a party to the standstill agreement, the agreement features many of the same effects as the insolvency process. It will provide for equality of treatment for creditors and will often give creditors considerable influence over the company. A steering committee or coordinator may be appointed by the lenders. Significant decisions may require unanimity from the committees appointed, in the case of regular ongoing matters a majority will be required. An agent bank, steering committee or coordinator may be appointed for certain administrative matters. A standstill agreement can be put in place for a short period of time in order to assess the position of the company. During the standstill period, the entirety of the company’s assets and liabilities will be reviewed.

The benefits of a standstill agreement are costs and confidentiality. Costs are lower than the court-based procedures and there are no public disclosure obligations. However, if agreement cannot be reached with key stakeholders, they are more likely to avail of a formal restructuring process.

3. Creditors. Rights and Remedies

3.1 Types of Securities

In an insolvency situation, the Irish courts recognise several types of security interests that creditors may hold over a debtor’s assets. These security interests determine the priority of claims and the rights of creditors (with the exception of preferential creditors whose status is derived from statute). The main types of security recognised include:

Fixed Charge: A fixed charge is a security interest over specific, identifiable assets of the debtor, such as real estate, machinery, or equipment. The creditor has control over the asset and the debtor cannot dispose of it without the creditor’s consent. In an insolvency, fixed charge holders have a high priority and are paid out of the proceeds of the sale of the charged assets.
Floating Charge: A floating charge is a security interest over a class of assets that can change over time, such as stock, inventory, or receivables. The debtor can use and dispose of these assets in the ordinary course of business until the charge “crystallises” (i.e., becomes fixed) upon the occurrence of a specified event, such as insolvency. Floating charge holders have a lower priority than fixed charge holders but still rank ahead of unsecured creditors.
Retention of Title: This is a contractual arrangement where the seller retains ownership of goods until the buyer has paid for them in full. In insolvency, the seller can reclaim the goods if they have not been paid for.

When a company is wound-up, the liquidator will distribute the assets of the company in broadly the following order:

Costs and Expenses of the Liquidation: The first priority is given to the costs and expenses incurred in the process of liquidation. This includes the liquidator’s fees, legal costs, and other administrative expenses necessary to wind up the company. Section 621 of the Act.
Secured Creditors: Secured creditors are paid next, based on the type of security they hold over the company’s assets.
Preferential Creditors: After secured creditors, preferential creditors are paid. These include certain employee claims and certain taxes owed to the State, eg:
- Employee Claims such as unpaid wages, holiday pay, and other entitlements up to a specified limit.
- Unpaid taxes, including PAYE, VAT, and social insurance contributions and rates incurred within 12 months.
Floating Charge Holders: Creditors with floating charges are paid from the proceeds of the sale of the assets subject to the floating charge once it crystallizes.
Unsecured Creditors: Unsecured creditors are paid after floating charge holders and preferential creditors. These creditors do not hold any security over the company’s assets and include trade creditors, suppliers, and customers.
Shareholders: Shareholders are the last to be paid in a liquidation. They receive any remaining assets of a company after all creditors have been paid in full. In most cases, shareholders receive nothing as the company’s assets are usually insufficient to cover all debts.

3.2 Rights and Remedies

A creditor’s rights depend on their security and the type of restructuring taking place.

Examinership and Liquidation provide for an automatic stay on enforcement measures against the debtor company. However, secured creditors can seek to enforce their security outside a liquidation. In SCARP and Part 9 Schemes, the debtor company can seek Court protection.

In general terms, a secured creditor may have recourse to the courts in the event that it appears that secured assets of the company are being disposed of or put beyond the reach of creditors.

4. Statutory Restructurings and Reorganisations

The Act is the primary legislation governing corporate insolvencies and reorganisation in Ireland.

There are three statutory reorganisation processes in Ireland:

Examinership (Part 10 of the Companies Act 2014, as amended;
Schemes of arrangement (Part 9 of the Companies Act)
The rescue process for small and micro companies (SCARP).

Examinership

Examinership is a statutory scheme for the rescue of individual companies or groups of companies to facilitate the survival of the whole or any part of a company as a going concern. An insolvent company that meets certain criteria can petition the court for protection from its creditors in order to determine if a restructuring plan can be put together by an Examiner. The court petition must be accompanied by an independent expert report in most cases which assesses whether the debtor company has a “reasonable prospect of survival”.

The Examiner is required to examine the company’s financial situation and develop a scheme of arrangement that is acceptable to the company’s creditors, shareholders and ultimately the court. As an independent appointee, the Examiner will maintain regular communication with the directors regarding the company’s performance during the protection period. If the Examiner has any concerns about the operation of the debtor’s business during this time, these will be included in the Examiner’s intermittent reports to the court.

A secured creditor cannot take any action to enforce its security. Furthermore, no petition may be brought to wind up the company, a receiver may not be appointed, leased goods may not be repossessed, and retention of title rights may not be enforced to recover goods. If upon the presentation of a petition a receiver stands appointed for fewer than three days, the receiver will cease to act and the examinership will proceed.

The Examiner has up to 100 days from the date of filing of the petition to report to the court that they have put together a scheme that has received the statutory minimum threshold of credit approval. In accordance with the European Union (Preventive Restructuring) Regulations 2022, a company cannot be under the protection of the court for longer than a year.

Creditors have a key role in approving the Examiner’s scheme. Cross-class cram down is permitted provided the Examiner’s scheme of arrangement is approved by either: (a) a majority of the voting classes of impaired creditors provided at least one of those classes is a secured creditor or is senior to the ordinary unsecured creditors (e.g. preferential creditors); or (b) at least one class of impaired creditors provided that class is one which would receive some payment or interest in the event that the company were liquidated (i.e. an “in the money” class). The creditors or a creditor class is deemed to have approved the scheme if a majority in number and value (51%) vote in favour.

Examinership is a very effective statutory tool for reorganisations given the short time period, and scheme of voting classes.

Schemes of Arrangement

A scheme of arrangement comprises an arrangement between a company, its creditors, and its members to financially restructure a business. There are two types of scheme of arrangement under Irish law: (i) those approved by the Court governed by Part 9 of the Companies Act 2014; and (ii) those which do not require Court approval governed by Part 11 of the 2014 Act.

There is no requirement that the company necessarily be insolvent. In order for the scheme of arrangement to go forward for court approval, the majority in number and 75% of the creditors and shareholders present must approve the scheme of arrangement. There is no automatic protection from creditors. An application can be made to the court for a stay on proceedings or to restrain new proceedings issuing. The application made cannot prevent a receiver from being appointed by a secured creditor.

When the votes in favour of the scheme of arrangement have been received, the scheme of arrangement may proceed for court sanction. There are a number of criteria which the court must be satisfied that the scheme of arrangement meets. Most importantly, the court must be satisfied that the majority who voted for the reorganisation plan are acting bona fide.

Once sanctioned by the court, the scheme of arrangement will be binding on all shareholders and creditors.

Scheme of arrangements that do not require court approval are governed by Part 11 of the 2014 Act. A non-court approval scheme may be availed in cases where a company is about to be or is in course of being wound up. In this case the scheme is binding if 75% in number and value of all creditors vote in favour of the scheme of arrangement. Once the relevant support has been obtained, any cross-class, cram- down will be binding on the company, its creditors and any liquidator.

SCARP

The small company administrative rescue procedure, or SCARP, is a dedicated rescue framework for small and micro companies. SCARP mirrors many elements of examinership in an administrative context (i.e. without direct court involvement, save in certain prescribed circumstances) resulting in efficiencies and lower comparable costs.

A small company can avail of SCARP if it satisfies any two of the following requirements in a single financial year:

The amount of turnover of the company does not exceed €15 million;
The balance sheet total of the company does not exceed €7.5 million; and
The average number of employees does not exceed 50.

A designated insolvency practitioner known as a Process Advisor must be first provided with a sworn statement of affairs by the directors. If the Process Advisor is satisfied that the company has a reasonable prospect of survival as a going concern, they will prepare a report similar to the independent expert’s report prepared in the examinership process. The board of the company will then pass a resolution to appoint the Process Advisor and, as such, the process initiates without the need for a court application.

The Process Advisor is required to inform the relevant creditors of their appointment. Under SCARP there is no automatic protection from creditors or stay on enforcement proceedings upon the Process Advisor’s appointment. However, the Process Advisor can apply to the court for creditor protection if deemed necessary.

The Process Advisor has 42 days from the date of the director’s resolution to prepare their report and formulate a rescue plan. The rescue plan may include reducing the company’s debts, implementing a cross-class cram-down, or both. The Process Advisor then has an additional 7 days to secure the necessary votes in favour of the plan.

For a rescue plan to be approved and legally binding on all creditors, it must receive a vote of 60% in number, representing over 50% by value of the creditors within a class present and voting. If the plan is approved, any cross-class cram-down will be binding on all creditors.

After the rescue plan is submitted to the relevant court officer, a 21 day cooling-off period begins, during which creditors or shareholders may object. If no objection is raised during this period, the plan becomes automatically binding. This cooling-off period, along with the reporting obligations of the process advisor, serves as the primary safeguard in the process, which otherwise involves minimal court intervention.

Owing to the minimal court supervision and oversight in SCARP to address legitimate concerns in respect of company compliance and the broader duty to ensure the members of the public are protected, the framework accounts for this by providing clear reporting obligations. The legislation also imposes criminal sanctions for directors who fail to provide necessary information, or who submit false or misleading information.

5. Statutory Insolvency and Liquidation Proceedings

Voluntary Insolvency and Liquidation Proceedings

Members’ Voluntary Liquidation (MVL)

This is a solvent liquidation process initiated by the company’s members (shareholders) when the company is able to pay its debts in full within 12 months. The directors must make a declaration of solvency, stating that the company can pay its debts within 12 months. A special resolution is passed by the members to wind up the company. A liquidator, nominated by the members is appointed to realise the company’s assets, pay off any debts, and distribute the surplus to the members.

A straightforward MVL is usually complete within 12-18 months, all creditors paid, and the surplus distributed. Upon liquidation, management and control of the company passes to the liquidator.

Creditors’ Voluntary Liquidation (CVL)

This is an insolvent liquidation process initiated by the company’s members when the company is unable to pay its debts. The directors convene a meeting of the members to pass a resolution to wind up the company and appoint a liquidator nominated by the company. A meeting of the creditors is also convened following the members’ meeting, where the creditors may ask questions of the directors, and nominate a different liquidator on behalf of the creditors. There is also provision for the appointment of a committee of creditors to be convened, called a committee of inspection.

The liquidator’s role is to realise the company’s assets, assess claims against the company, and distribute the proceeds to the creditors. The liquidator takes control of the company from the directors, realises the assets, and discharges the proceeds in accordance with the statutory framework in the Act, set out at Section 3.1 above. A court application is required to continue proceedings against a company in liquidation. The powers of the liquidator are set out in section 637 of the Act.

A relatively straightforward CVL should be concluded within 18 months.

Involuntary Insolvency and Liquidation Proceedings
Compulsory Liquidation

This is a court-ordered liquidation process initiated by a creditor, the company itself, or other stakeholders when the company is unable to pay its debts. A petition, verified by affidavit and advertised in national newspapers and the statutory publication is presented to the High Court, usually by a creditor, on the grounds that the company is insolvent. If the court is satisfied that the company is insolvent, it will issue a winding-up order and appoint an official liquidator (nominated by the petitioner) to take control of the company, realise its assets, and distribute the proceeds to the creditors in accordance with section 3 above.

If a party wishes to continue proceedings against a company in liquidation, it must seek leave of the court in order to do so.

The liquidator has the powers conferred on it under section 637 of the Act, and may apply to court for directions in the event the liquidator, as a court appointed official, is requires court approval or to determine a question arising from the liquidation.

A relatively straightforward official liquidation should be concluded within 18 months.

6. International / Cross-Border Insolvency Issues

Ireland generally provides recognition and relief in connection with restructuring or insolvency proceedings initiated in another country, primarily derived from European Union regulations, international treaties, and domestic legislation.

European Union Framework

1. EU Insolvency Regulation (Recast) (Regulation (EU) 2015/848)

This regulation applies to cross-border insolvency proceedings within the EU member states. It aims to facilitate the efficient administration of insolvency proceedings and ensure the recognition of such proceedings across the EU.

Key Provisions:
- Automatic Recognition: Insolvency proceedings opened in one EU member state are automatically recognized in other member states without the need for further formalities.
- Jurisdiction: The regulation establishes the jurisdiction for opening insolvency proceedings based on the debtor’s “centre of main interests” (COMI).
- Cooperation and Communication: Insolvency practitioners and courts in different member states are required to cooperate and communicate to ensure the effective administration of cross-border insolvencies.

Domestic Legislation

2. Companies Act 2014

The Companies Act 2014 includes provisions that allow Irish courts to recognise and provide assistance in foreign insolvency proceedings.

Key Provisions:
- Section 1417: This section empowers the Irish High Court to assist foreign courts in insolvency matters, provided that the foreign proceedings are conducted in a manner that is consistent with Irish public policy.
- Discretionary Relief: The court has the discretion to grant relief, such as staying proceedings against the debtor’s assets in Ireland or appointing a local representative to assist with the administration of the foreign insolvency.

Practical Considerations

3. Comity and Public Policy

Irish courts generally recognise foreign insolvency proceedings based on the principle of comity i.e. the mutual recognition and respect of legal proceedings between jurisdictions. Recognition may be refused if the foreign proceedings are contrary to Irish public policy. This ensures that the fundamental principles of Irish law are upheld.

Ireland has not yet signed up to the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency.

Irish courts have the ability to enter into protocols and other arrangements with foreign courts to coordinate cross-border insolvency proceedings. This coordination is facilitated by the EU Insolvency Regulation (Recast), the Companies Act 2014, and the principles of comity and judicial cooperation. Practical measures such as joint hearings, information sharing, and harmonised timelines help ensure the efficient and effective administration of cross-border insolvency cases.