By Shannon Power, 5th August 2022
In Ireland, the Directors’ Duties within the Companies Act 2014 will be amended following the EU (Preventive Restructuring) Regulations 2022 which commenced on the 17th of July 2022. The new regulations set out minimum rules for Member States to create preventative restructuring frameworks within their national laws. The resulting changes should remove barriers across the EU allowing for effective preventive restructuring of viable debtors in financial difficulties.
The Irish government recently published an informative note breaking down the key provisions of the recently transposed Directive (EU) 2019/1023 (the PRD) as regards corporate insolvency through the EU (Preventive Restructuring) Regulations 2022. It has not been left it up to the member states to interpret the PRD themselves, the transposition has instead been provided by the Preventive Restructuring Regulations. It should be noted that Ireland’s examinership framework is generally regarded internationally as an example of best practice in preventive restructuring. The existing examinership framework already complies with numerous aspects of the EU requirements and Ireland seeks to transpose the Directive with minimal disruption to the existing examinership regime.
A major implication of transposing the EU (Preventive Restructuring) Regulations 2022 is that the Companies Act 2014 will be amended to include the following directors’ duties:
- Early Warning System
The Regulations state that a company director should have an Early Warning System (EWS) to alert companies of an insolvency situation, so that they can take preventative steps. The Corporate Enforcement Authority website contains useful information and corrective steps that viable businesses should take to respond to and recover from insolvency. This provision intends to help companies maintain employment and minimise job losses.
- Director’s Duties to Creditors
A statutory basis will be provided within the Companies Act 2014 where there is a duty to creditors during the period approaching insolvency. Prior to the regulations this was a common law duty only and not specified within the statutory duties outlined in Section 228 of the Companies Act 2014. This duty is owed by company directors and will be enforceable in the same way as any other fiduciary duty. This means that a director in breach of this duty could face legal proceedings.
Powers of Examiner & the Certification of Liabilities
Regulation 13 introduces the responsibility of an examiner to certify any liabilities during the protection period as expenses to include at least:
- The payment of fees and costs of negotiating or confirming a scheme of arrangement. This should also include the cost of seeking professional advice connected with the examinership;
- The payment of employees’ wages for work that has already been carried out; and
- Any other payments and disbursements made during the regular course of business.
This should also provide for liabilities incurred during the period of protection and how they are treated during a subsequent winding up. Where the court deems the liabilities were reasonable and necessary for the negotiation of the scheme of arrangement, they cannot be deemed void or unenforceable solely because they are detrimental to creditors.
Key Provisions of the Preventive Restructuring Regulations
The following definitions for certain new terms are provided by the European Union (Preventive Restructuring) Regulations 2022.
- ‘Executory contract’ which means a contract between a company and one or more creditors under which the parties still have obligations to perform at the commencement of the period referred to in section 520(2).
- ‘Best-interest-of-creditors test’ means a test that is satisfied if no dissenting creditor would be worse off under a restructuring plan than such a creditor would be if the normal ranking of liquidation priorities under national law were applied, either in the event of liquidation, whether piecemeal or by sale as a going concern, or in the event of the next-best-alternative scenario if the restructuring plan were not confirmed.
- ‘Restructuring’ means measures aimed at restructuring the debtor’s business that includes changing the composition, conditions or structure of a debtor’s assets and liabilities or any other part of the debtor’s capital structure, such as sales of assets or parts of the business and, where so provided under national law, the sale of the business as a going concern, as well as any necessary operational changes, or a combination of those elements.
- ‘New financing’ means any new financial assistance provided by an existing or new creditor in order to implement a restructuring plan and that is included in that restructuring plan.
The Preventive Restructuring Regulations will now be implemented across member states to provide an EU-wide framework that aims to ensure effective restructuring processes that are efficient both at a national and cross-border level. Viable EU enterprises that are in financially difficult situations will have access to effective national preventive restructuring frameworks that will enable them to continue to operate.
If you have any questions about this information covered in this article and how it will impact your Irish company, please don’t hesitate to contact us today or call +353(0)1 6461625. One of our Company Secretarial experts would be happy to assist you with your ongoing compliance obligations.
Disclaimer This article is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Company Bureau for any action taken or not taken in reliance on the information set out in this article. Professional or legal advice should be obtained before taking or refraining from any action as a result of this article. Any and all information is subject to change.