I am one of the Directors of a small company and with the global downturn we are finding it hard to attract new work and to get paid for work already completed. We have a cash flow problem and therefore we have been unable to pay all our creditors for some time.
I have met with my fellow Directors and we have formulated a plan, and we strongly feel that we could turn things around in six months or so if given the opportunity. Is there any advice you could give as to how we should handle this situation?
As this is a potentially serious situation, the Directors will need to get detailed financial and legal advice, and therefore you will need to meet with your accountant and solicitor to get their advice as to how the company is to proceed.
However a possible option to consider is ‘Examinership’. This concept is governed by the Companies (Amendment) Act 1990 as amended by Companies (Amendment) (No. 2) Act 1999.
Appointment of Examiner:
Where a company is, or is likely to be, unable to pay its debts and has not been wound up, a petition may be presented by the Directors to the High Court seeking the protection of the Court and the appointment of an examiner. In making an order to appoint an examiner, the Court must be satisfied that there is a reasonable prospect of the survival of the company as a going concern. An independent report must say that if the company was restructured with certain remedial procedures, it has a prospect of survival going forward.
Duties of an Examiner:
The principal duty of the examiner is to prepare a report for the Court on the viability of the company. As part of the report the examiner is obliged to formulate a compromise or scheme of arrangement in respect of the company.
The proposals are then sent out to certain creditors who meet to discuss them and reach a decision. A majority must then give their approval for them to be accepted.
Once this report is voted on by the creditors the examiner must again report to the Court on the outcome of those meetings.
Effect of Appointment of an Examiner:
Once approval has been granted by the Court to appoint an examiner, then from a period of 70 days from the date of the petition (which can be extended by 30 days in certain circumstances) the company is protected from any action which might be taken by creditors. Accordingly, no winding-up proceedings will be allowed in that period.
To conclude new owners/new investors may become shareholders in the company which could be an issue for you and your fellow directors in that you will no longer be in control.