Examinership - Legal Loophole?

mirrorwall14

I'm not sure if this is more relevant to account or legal but I'll ask here.

I've been doing a lot of reading about companies applying for examinership to the courts, why and how they do it. My understanding is it protects a company from creditors, they have to be able to afford to trade through the period and have a plan for the future to be approved

I've come across something I'm unsure of however.

In order to apply for examinership a company is technically insolvent. If a company chooses to lay off all staff, not pay their wages and then apply for examinership do those staff members then get stuck in a legal loophole where they are not entitled to apply to the company for wages (examinership protects the company) nor can they apply for statutory redundancy because Examinership is not a qualifying ground?

This seems to be an oversight in the administration of an examinership which would leave employees in a rotten situation of no arrears/redundancy for the period of examinership or am I missing something in legislation that covers this?

Examinership seems to be a very interesting concept unique to Irish Law

Samuel T. Cogley

mirrorwall14 wrote: »

Examinership seems to be a very interesting concept unique to Irish Law

Interesting points and looking forward to the discussion but on this point you've essentially got administration in other countries.

Examinership etc. is even more interesting when you read up on the history of it and it's overnight drafting!

mirrorwall14

Samuel T. Cogley wrote: »

Interesting points and looking forward to the discussion but on this point you've essentially got administration in other countries.

Examinership etc. is even more interesting when you read up on the history of it and it's overnight drafting!

Oh thats why I'm getting only Irish stuff on google searches. Off for more reading so

Really Interested

mirrorwall14 wrote: »

I'm not sure if this is more relevant to account or legal but I'll ask here.

I've been doing a lot of reading about companies applying for examinership to the courts, why and how they do it. My understanding is it protects a company from creditors, they have to be able to afford to trade through the period and have a plan for the future to be approved

I've come across something I'm unsure of however.

In order to apply for examinership a company is technically insolvent. If a company chooses to lay off all staff, not pay their wages and then apply for examinership do those staff members then get stuck in a legal loophole where they are not entitled to apply to the company for wages (examinership protects the company) nor can they apply for statutory redundancy because Examinership is not a qualifying ground?

This seems to be an oversight in the administration of an examinership which would leave employees in a rotten situation of no arrears/redundancy for the period of examinership or am I missing something in legislation that covers this?

Examinership seems to be a very interesting concept unique to Irish Law

The first point is that Examinership is not unique to Ireland in fact Ireland was pretty late to that type of legal area.

Your question raises a few interesting points, but off the head with no research.

1. It would not make business sence to lay off staff and then seek the protection of the Courts, as I do not think a High Court Judge would look on such action well.
2. If a company is seeking the protection of the High COurt it would be a better idea to let the Court sanction any lay offs that are required for the company to survive.
3. The examiner has a lot of power and is protected by the Courts for any action he may take.

Also if you look at the Clery's case you can see messing around with employee rights is a dangerous road to go down.

Remember the Directors could face serious sanction from a High Court judge especially if they misuse Company law.

nuac

Mod
Amended title. Interesting thread.

mirrorwall14

Really Interested wrote: »

The first point is that Examinership is not unique to Ireland in fact Ireland was pretty late to that type of legal area.

Your question raises a few interesting points, but off the head with no research.

1. It would not make business sence to lay off staff and then seek the protection of the Courts, as I do not think a High Court Judge would look on such action well.
2. If a company is seeking the protection of the High COurt it would be a better idea to let the Court sanction any lay offs that are required for the company to survive.
3. The examiner has a lot of power and is protected by the Courts for any action he may take.

Also if you look at the Clery's case you can see messing around with employee rights is a dangerous road to go down.

Remember the Directors could face serious sanction from a High Court judge especially if they misuse Company law.

Yeah, I don't have a legal background so I totally missed that examinership is called other things abroad (blame the wikipedia article that says examinership is unique to Ireland)

I suppose I'm thinking of a circumstance where a company sort of goes back to its beginnings and has a small team willing to work through an examinership for little/nothing and fires others before applying for examinership.

If they have been fired/laid off before the protection of the court kicks in how would it work for them in terms of entitlements since the company would then no longer be insolvent.

Actually on that note I actually don't know what happens if a normal employer refuses to pay wages. What does the employee do?

Really Interested

mirrorwall14 wrote: »

Yeah, I don't have a legal background so I totally missed that examinership is called other things abroad (blame the wikipedia article that says examinership is unique to Ireland)

I suppose I'm thinking of a circumstance where a company sort of goes back to its beginnings and has a small team willing to work through an examinership for little/nothing and fires others before applying for examinership.

If they have been fired/laid off before the protection of the court kicks in how would it work for them in terms of entitlements since the company would then no longer be insolvent.

Actually on that note I actually don't know what happens if a normal employer refuses to pay wages. What does the employee do?

My own view at a guess, if the Company laid off the workers to stiff them and then seeks protection watch the fireworks from the Judge who will not be impresed. Also I can see no advantage, go into examinership and let the examiner sort out the employees and then the Directors are not getting in to what could be a possible fraud which could make them personally liable for the money due to the employees.

https://www.rte.ie/news/courts/2017/0410/866733-clerys/

In normal case if a employee is unpaid he can sue in contract or brings a case to Labour Court or inform NERA.

4ensic15

Examinership depends on producing a viable survival plan to keep the company going. Laying off the staff means ceasing activity, which means losing customers. How could an independent accountant produce a survival plan in those circumstances? The accountant has to examine the affairs of the company, business on hand, payments dues and owed, levels of debt and future business prospects. No way can this be done without taking into account the skills and experience of the staff. Zero staff would mean that there would be no chance of interim examinership let alone a full examinership.

GerardKeating

4ensic15 wrote: »

Examinership depends on producing a viable survival plan to keep the company going. Laying off the staff means ceasing activity, which means losing customers. How could an independent accountant produce a survival plan in those circumstances? The accountant has to examine the affairs of the company, business on hand, payments dues and owed, levels of debt and future business prospects. No way can this be done without taking into account the skills and experience of the staff. Zero staff would mean that there would be no chance of interim examinership let alone a full examinership.

Examinership can be used to "replace" expensive lease/rents with cheaper alternatives, i suppose the same could be done with staff, replace all the expensive/experienced staff with interns.

4ensic15

GerardKeating wrote: »

Examinership can be used to "replace" expensive lease/rents with cheaper alternatives, i suppose the same could be done with staff, replace all the expensive/experienced staff with interns.

That would be making payroll savings as part of the examinership process, not firing the staff beforehand. It would be assuming that the company had been paying skilled and experienced people in circumstances where unskilled interns could do the job. The independent accountant would have to be satisfied that was the position, which would say a lot about the management abilities of the operators of the business. Why should they be let continue to mismanage a business?

Samuel T. Cogley

Just musing but employees are given preferential treatment in terms of creditors IIRC. The purpose of examinership is to keep the company going for all the benefits that brings, which I would submit includes keeping as many jobs as possible. Proper restructuring as part of the plan is fine but general lay-offs, not so sure.

mirrorwall14

Looks like I was more or less correct (as per page 65 of this thesis)

https://research.thea.ie/bitstream/handle/20.500.12065/1105/An%20investigation%20into%20the%20appointment%20role%20and%20success%20of%20Examinership%20in%20Ireland.pdf?sequence=1

If employees are fired (not made redundant) and not paid before examinership they become a creditor but examinership protects the company from creditors. Also the company is not classed as insolvent they are not entitled to their pay while the company is in examinership. Seems a pretty big oversight

mirrorwall14

mirrorwall14 wrote: »

Looks like I was more or less correct (as per page 65 of this thesis)

https://research.thea.ie/bitstream/handle/20.500.12065/1105/An%20investigation%20into%20the%20appointment%20role%20and%20success%20of%20Examinership%20in%20Ireland.pdf?sequence=1

If employees are fired (not made redundant) and not paid before examinership they become a creditor but examinership protects the company from creditors. Also the company is not classed as insolvent they are not entitled to their pay while the company is in examinership. Seems a pretty big oversight

1. Companies don't have to be insolvent to apply for examinership

2. Doing what you've hypothesized would pretty much guarantee the examinership would fail, in which case the company would automatically enter liquidation and the former employees would be unsecured creditors in much the same manner as they would anyway.
3. That small portion of the thesis you quote deals with the access to statutory assistance schemes for persons made redundant or who lose their jobs and pay due to company insolvency - not a blatant attempt to defraud creditors.

mirrorwall14

Deleted User wrote: »

1. Companies don't have to be insolvent to apply for examinership

2. Doing what you've hypothesized would pretty much guarantee the examinership would fail, in which case the company would automatically enter liquidation and the former employees would be unsecured creditors in much the same manner as they would anyway.
3. That small portion of the thesis you quote deals with the access to statutory assistance schemes for persons made redundant or who lose their jobs and pay due to company insolvency - not a blatant attempt to defraud creditors.

By the examinership failing do you mean that they would not be granted examinership in the first place or that they would not make it out of examinership? The latter would seem very likely in this hypothetical to be faiR.

I suppose my thinking the hypothetical employees have had an extra three months before they can even apply to access from the schemes available for these scenarios despite not being paid nor getting redundancy which seems pretty tough

mirrorwall14

mirrorwall14 wrote: »

By the examinership failing do you mean that they would not be granted examinership in the first place or that they would not make it out of examinership? The latter would seem very likely in this hypothetical to be faiR.

I suppose my thinking the hypothetical employees have had an extra three months before they can even apply to access from the schemes available for these scenarios despite not being paid nor getting redundancy which seems pretty tough

I mean they aren't allowed to enter examinership at all. They might get to the protective state before a scheme of arrangement but that would collapse pretty sharp if they tried this.