Corporate Rescue Through Examinership

In these difficult and uncertain times companies will be taking a forensic look at all options available to them in order to maximize cash-flow for the purpose of continuing trade.  Even where hard decisions are taken to keep the show on the road in the short term, some will look at the information gathered in their review and consider longer terms options to maintain the viability of their businesses.  One of these options may be to place the Company into Examinership.

 

What is Examinership

Examinership is a corporate recovery process which allows a company that is in financial difficulty but which has a sound underlying business model to apply to the courts for an examiner to be appointed. If the courts approve the petition for examinership, the examiner is appointed to the company with a view to formulating a proposal to ensure the company’s survival. During the period of the examiner’s appointment, the company is protected from its creditors.

 

The Examinership Petition

In order to petition for examinership, the company must be insolvent but it must have a reasonable prospect of survival and sufficient cash flow to trade during the period of the examinership.

Application is made to the court on an ex parte basis, without any notice being given to creditors or other interested parties. Save in exceptional circumstances, application must be supported by an Independent Expert’s Report which sets out the conditions needed for the company’s survival and must state that in the expert’s opinion the company (or part of its undertaking) has a reasonable prospect of survival if these conditions are met.

If the court is satisfied that statutory tests for the appointment of an examiner have been met, it will fix a date for a hearing to confirm the appointment of the examiner. Notice of the confirmation hearing must be given to creditors and other stakeholders so that they may support or oppose the examiner’s appointment. The period of court protection begins on the date of the initial ex parte application and application can be made for the examiner to be appointed on an interim basis pending the confirmation hearing.

 

The Examinership Process

The protection of the court runs for 70 days initially and can be extended on application to 100 days (but no longer). During the period of examinership, the directors of the company remain in place and carry on the day to day running of the company’s business.

Once appointed, the examiner will review the company’s affairs with a view to formulating a scheme of arrangement whereby the debts of the Company are settled, usually with a write down of debts owed to certain classes of creditors. This may include negotiating rent reductions with landlords or, where reductions cannot be agreed, applying to the court to repudiate leases. In order for an examinership to be successful, the company will generally require fresh investment from existing shareholders or from a third party and the examiner will advertise seeking expressions of interest from investors.

 

Exiting Examinership

The examiner’s proposed scheme of arrangement must be approved by a majority in number representing a majority in value of one class of creditors and no class of creditors can be unfairly prejudiced (i.e. they must not receive less than they would in the event that the company were liquidated). If external investment has been secured an investment agreement will need to be prepared and executed.

Once approved by at least one class of creditor, the scheme of arrangement is presented to the court. If the court is satisfied it will make an order approving the scheme of arrangement and the examinership will end.

 

Key Considerations

    • A petition will be refused if a resolution to wind up the company has been passed, an order has been made for the winding up of the Company or a receiver has been appointed over any of the Company’s undertaking and assets and has been in place for three days prior to the petition being made.
    • The costs of applying for examinership are substantial. While most SMEs will meet the criteria for examinership through the Circuit Court, the costs of the Independent Expert’s Report and bringing the petition will be in the region of €15,000 – €20,000. Larger companies must petition the High Court with much higher associated costs. As a result, it is important to initiate the process at an early stage while the company still has sufficient cash available to fund the application.
    • In order to maintain cash flow during the protection period, and to secure the approval of the scheme of arrangement, the support of key customers and suppliers is vital if an examinership is to succeed.
    • An external investor will have a limited period of time in which to carry out due diligence on the company so work should commence immediately on gathering the relevant information that an investor is likely to require.
    • An external investor is likely to seek a substantial equity stake in the Company in return for their investment which can lead to the existing shareholders’ stake being effectively wiped out. As a result, it may be preferable for existing shareholders to source funds themselves and advance them to the company.

 

In J.W. O’Donovan we have both the experience and expertise across our various departments including Corporate and Commercial, Litigation and Property to guide you through the Examinership process from start to finish.  Should you wish to discuss the process in more detail then please don’t hesitate to contact either John Sheehan or John Fuller of our Corporate Department, details for whom can be found on our website www.jwod.ie

Virtual Court hearings to commence this term

The Courts Service, like many other public amenities, has been adversely affected by the Covid-19 crisis and is experiencing unprecedented difficulties in the operation of its services and the administration of justice. With the exception of urgent criminal and family law cases, very few proceedings have been determined by the courts in recent weeks.

In an attempt to restore some level of progress to proceedings the Chief Justice, Mr. Frank Clarke recently announced the introduction of virtual court hearings. This system of remote hearings is already in operation for some criminal appearances and is used by the prison service and Gardaí. As and from the 20th of April this virtual courtroom facility was extended to civil cases also. Both the Supreme Court and the Court of Appeal heard matters in individual cases with judges, practitioners and the parties to the proceedings appearing via video from remote locations. The cases were displayed on video screens in largely empty courts for members of the media present. Not only will this new facility reduce the significant backlog of cases which exists from the closure of the Courts but it will also reduce pressure on parties to unwillingly settle disputes due to the undetermined waiting time to have the matter resolved by a judge.

Chief Justice Clarke stated that a “considerable amount of work has been done” on facilitating remote hearings “which nonetheless comply with the constitutional obligation that justice be administered in public”. Mock trials were conducted in the past few weeks to test the new system and it is expected that the Courts will soon issue guidance in relation to the operation of the new system in each court jurisdiction.

In a statement delivered in court via remote link, Chief Justice Clarke confirmed that “Remote hearings will be suitable for some types of proceedings in the High Court and a limited number of cases in the District and Circuit Courts. The Court Presidents and the Courts Service are exploring ways in which to increase the number of cases which can be dealt with in physical hearings. It must also be acknowledged that many urgent cases throughout the Country have been handled by dedicated judges and staff often working in difficult conditions. The District Court in particular has, because of its caseload of often urgent criminal and family hearings, had to bear a particular load.”

A similar approach will be required in respect of employment cases before the Workplace Relations Commission (“WRC”) and the Labour Court. The Law Society’s Employment & Equality Committee is of the view that a significant amount of cases before the WRC and the Labour Court could also be heard using the technology which the Courts Service are availing of. The Law Society issued a letter to both the Registrar of the Labour Court and the Director of the WRC proposing that remote hearings should be utilised for employment disputes where all parties consent to using applications such as Skype or Zoom until a more formal arrangement can be set up. Such a proposal would serve the interests of justice when compared to the alternative to postponing hearings indefinitely, leaving employees and employers facing uncertainty. The Mental Health Commission is also conducting Tribunals by video-conference and it should be possible for the WRC and the Labour Court to adjudicate on questions of employment rights remotely.

It is reassuring to see that the Courts Service are adapting to the current difficulties and that measures are being introduced to ensure that the administration of justice continues.  It is hoped that the WRC and the Labour Court will also avail of these new technologies to provide virtual hearings for use in employment related disputes.

J.W. O’Donovan is monitoring developments in this area in order to keep its clients aware of the evolving situation. Should you have any queries as to the effect of the above, please email Ciara Lehane, Associate Solicitor at clehane@jwod.ie.

New financial supports announced for struggling business owners and employees as a result of Covid-19

The Government has announced new measures this week to help businesses and employees who are struggling financially during the Covid-19 emergency. The new measures provide a comprehensive range of supports for businesses who are in a position to retain employees but also for employees who have been laid off as a result of the crisis. The measures introduced (as of the 26th of March 2020) include a Temporary Wage Subsidy Scheme for employers and a social welfare payment known as the ‘Covid-19 Pandemic Unemployment Payment’ for employees who have been laid off.

  1. Temporary Wage Subsidy Scheme:

The Temporary Wage Subsidy Scheme aims to ensure that employers maintain links with their employees which will make it easier for businesses to return to a normal working environment after the crisis. Employers are encouraged to avail of the scheme and retain employees on their books during the crisis.

The scheme will operate from Thursday 26th March 2020 and Revenue will refund employers up to €410 for qualifying employees from this date. Refunds to employers are expected within 2 working days after the payroll submission.

From April, the subsidy will be adjusted to provide a subsidy of 70% of an employee’s weekly wage up to a maximum of €410 for employees earning under €38,000. For employees earning between €38,000 and €76,000 the maximum subsidy will be €350. The scheme will not apply in respect of employees earning over €76,000.

To qualify for the scheme employers must experience significant negative economic disruption to their business due to Covid-19. In particular, employers must demonstrate to Revenue that their business has suffered a minimum of a 25% decline in turnover and that they are unable to pay normal wages and outgoings.

The scheme will automatically replace the Covid-19 Refund Scheme which many employers have already signed up to.

Employers can register for the scheme through ‘MyEnquiries’ on the ROS website.

  1. Covid-19 Pandemic Unemployment Payment:

The Covid-19 Pandemic Unemployment payment is a social welfare payment available to employees who have been laid off work as their employer was unable to retain them due to the Covid-19 crisis.

This new social welfare payment of €350 is available to all employees, self-employed, students and part-time workers aged between 18 and 66, who have lost their jobs or stopped trading as a result of the pandemic.

The original rate of payment was €203 however all recipients will automatically receive the increased rate of €350. The increased rate will also be backdated to the date of the employee’s application.

The easiest way for employees to apply is online at www.MyWelfare.ie or by sending an application form by post.

These two new support measures provide much needed assistance to struggling businesses and employees during these difficult times.

We at J.W. O’Donovan are monitoring the situation very closely and are available to answer any queries that any businesses owners or employees may have at this time.  We strongly advise that a constant review of the Revenue guidelines be undertaken as the applicable rules are frequently changing. If you would like more information on any of the above please contact mail@jwod.ie.

Date of Publication: 26th March 2020

Employment Law Update: Covid-19 Pandemic Unemployment Payment Scheme and Illness Benefit

As employers and employees face into changed circumstances as a result of Covid-19,  the government has introduced new social welfare measures to take effect immediately.

The situation remains fluid, with the guidelines being updated regularly. If you need specific advice around your obligations as an employer, you can get in touch at mail@jwod.ie.

The following is an overview of the current Covid-19 Pandemic Unemployment Payment Scheme and the Illness Benefit.

1 Covid-19 Pandemic Unemployment Payment Scheme

The Government has introduced the Covid-19 Pandemic Unemployment Payment Scheme, which is designed to cover the first six weeks of being out of work. Job-Seekers Allowance is not ordinarily payable for that period.

The €203 payment a week under this new scheme arises where the employed or self-employed become unemployed or have their hours reduced because of the impact of Covid-19. It is payable for six weeks during which time employees must seek the normal Job-Seekers Allowance. Currently, employers will not get Job-Seekers Allowance after the six week period. This will likely be reviewed by Government as matters progress over the coming period.

The scheme applies to those between 18 and 66 years of age and applies provided they have been in work. The claim is made by completion of a short form which should be submitted electronically and not be personal visit to the relevant Intreo office.

As part of the evolving Government response, employers are being requested to pay the €203 a week and seek reimbursement from the Government. On Wednesday the 18th March 2020, the Government announced the reimbursement scheme would be operated by Revenue on behalf of the Department of Employment Affairs and Social Protection. The up-to-date Revenue advisory to employers is payments made by employers under this scheme are not subject to tax, USC or PRSI. The amount paid by employers to employees and notified to Revenue will be reimbursed generally on a “next day” basis direct to the employers bank account.

Any refunds of income tax or USC that an employee may be entitled to receive due to being laid off will also be administered by the employer and again the employer will be reimbursed by Revenue through the scheme.

Revenue has issued guidance notes for employers and their ROS agents on its website.

2 ILLNESS BENEFIT 

The Government also introduced a recent change to entitlement to Illness Benefit increasing it to €305 a week for Covid-19- affected people only (normal non-Covid-19 Illness Benefit continues at €203 a week). To obtain Covid-19 Illness Benefit, the employee must satisfy the criteria of being medically certified to self-isolate or having received a medically confirmed diagnosis of Covid-19. If it is a medically approved self-isolation, the employee is paid enhanced Illness Benefit for two weeks and if a diagnosis of Covid-19 follows, then the payment continues for the duration of the illness.

An employee who unilaterally decides not to come to work, where work is available from the employer, does not qualify for the enhanced Illness Benefit of €305.

Article by David Pearson, Partner on J.W O’Donovan Solicitors’ Employment Law team.

Covid-19 JWOD Update

To all our clients and colleagues.

We are constantly monitoring the evolving situation with Covid 19 and are following all advice from the authorities in the best interests of our staff, clients and colleagues. Our office remains open and we are continuing to provide a full service to our clients, while taking all appropriate measures to play our part in containing the spread of the virus.

Our IT systems allow all our solicitors to work remotely so they will do so where feasible and will continue to be available to clients.

We have adopted a policy that face to face client meetings will only take place where absolutely necessary and with all appropriate safeguards.

We are committed to supporting all our clients during this difficult period so you should feel free to contact us as usual. We shall provide further updates as and when required.

What are employer duties around Covid-19?

The outbreak of the coronavirus Covid-19 raises challenging points of Health and Safety Law, Employment Law, Data Protection Law, Immigration and Employment Equality issues. The outbreak is prompting employers and HR Departments to assess the risks, review existing Contracts of Employment and Company Policies, devise a plan and clearly communicate with employees on a continuing basis in light of the evolving spread of Covid-19.

What should employers do? 

Employers should carry out a Risk Assessment of the workplace under Health and Safety legislation. Measures to protect against the spread of Covid-19 entering the workplace and to mitigate or minimise the effects of an outbreak at the workplace should also be adopted. Measures could be minimal such as ensuring sufficient hand sanitisers, hand wipes and increased cleaning of surfaces. Other options include permitting or requiring employees to work from home or remain out of work.

Relevant company policies should be reviewed, including policies such as an existing infectious disease outbreak response plan, sick pay policy, holiday policies, force majeure policies, carers policies and lay-off policies.

Communicate with your employees

Once the initial risk assessment has been carried out and all policies reviewed, strong HR communication with staff is critical to ensuring a full understanding by employees of what is expected of them, particularly if they become symptomatic or in contact with somebody who is symptomatic. Employees should also be informed that if a significant portion of the workforce become infected or are required to remain in “self-isolation” the policies may need to be adapted to changing circumstances.

Obligations around pay and sick leave

One of the main questions for an employer will be whether to pay or not pay an employee who is required to remain out of work but not diagnosed with Covid-19.  If those employees can continue to work from home then they should be paid their normal renumeration. If they’re not able to work from home, the employer needs to apply a consistent policy across the workforce and keep that policy under review.

Where an employee has not contracted Covid-19 but is required to remain out of work and unable to work because of public policy considerations or directions, any sick pay policy will not apply to that employee until such time as the employee has contracted Covid-19.

Additionally, an employer may need to relax normal rules around providing medical certification of sickness in circumstances where medical professionals may not be in a position to provide certification and/or employees may not be in a position to obtain medical certificates in a timely fashion.

In parallel with the application of any sick pay policy, the employer needs to ensure that it has a robust absence policy for employees who may seek to unfairly take advantage of a developing situation. Consideration will need to be given to employees who refuse to come to work,  including those based on reasonable grounds. Flexibility around unpaid leave, annual leave and/or carers leave might need to be considered by the employer.

In extreme cases, an employer may be required to temporarily shut a significant part or all of the workplace.  Employers may be able to temporarily “layoff” staff under existing contracts of employment and the employee handbook.  An infectious disease outbreak response plan would also need to take consideration of employees who have travelled abroad on behalf of the employer, in particular, employees returning from areas that are subject to an outbreak of Covid-19.

Applying an infectious disease outbreak response plan

In implementing any infectious disease outbreak response plan, an employer must have particular regard for individual employees who have contracted Covid-19 or who may be required to remain out of work. Information in relation to individual employees will be personal data under GDPR and will require to be treated with the greatest sensitivity by the employer.

Another challenge for employers applying an infectious disease outbreak response plan is to ensure that its application is not based on race, nationality or ethnicity.  The Employment Equality Acts prohibits discrimination against employees on a number of grounds, including race, with severe consequences for employers who are found to have discriminated against employees.

In summary, an employer’s infectious disease outbreak response plan should be reviewed frequently in light of any developing situation within the workplace and generally and taking into account of advice from appropriate authorities such as the government, HSE and World Health Organisation.

Article by David Pearson, Partner on J.W O’Donovan Solicitors’ Employment Law team. If you would like more information on this topic, contact David at dpearson@jwod.ie  or 021 7300200.

 

JW O’Donovan advises vendors in sale of PE Global to BIL

J.W. O’Donovan recently advised vendors in the sale of significant controlling interests from leading healthcare and technical recruitment specialists, PE Global,  to investment holding company, Bakhchysarai Ireland Limited (BIL).

Ray Shanahan and John Fuller acted for the shareholders in PE Global in relation to their sale of a significant controlling interest in the Company to BIL. David Pearson also provided advices in relation to the employment law aspects of the transaction.

BIL was set up in 2018, to facilitate the management buyout of Brightwater Recruitment Group. PE Global currently employ about 60 people in Dublin,  London and Cork and will continue to operate as an independent business.

Read more here and here.

Ten steps to buying a house

This article first appeared in the Irish Examiner on 18th January 2020.

As 2020 begins and new year’s resolutions are set, there will be many taking the first steps to owning their own home.

The prospect of buying a house, whether you are a first-time buyer, trading up or downsizing can be both daunting and exciting. Many people are uncertain of the details of the process and the order of events.

While each transaction will have its own nuances and peculiarities to be addressed, there are several legal and financial steps that are common to every purchase with a mortgage via private treaty (offers made through an auctioneer and not a purchase at an auction).

  1. Identify and secure the right property at the right price

The first step is, of course, to identify your budget, taking into consideration all your savings and earnings. It’s important to also take into account all possible fees that may come up throughout the entire process.

Once you know how much you have to spend, you can then begin house-hunting for a suitable property.

  1. Pay a refundable booking deposit to the auctioneer

This is a holding deposit only and a gesture of good faith. It should mean the property will not be actively marketed while you carry out due diligence in respect of the legal elements, surveys etc. This agreement will not be binding until the contract is signed by you and the vendor of the property

  1. Instruct a solicitor to act on your behalf

Ensure it is someone you can have confidence in and relate to. Cheapest isn’t always the best! Your solicitor should provide you with a budget for the purchase that includes the fees, costs and outlays (e.g. stamp duty and land registry fees) which you will incur if you proceed with buying this property.

  1. Organise a survey of the property

A survey should be carried out by a suitably qualified engineer with appropriate professional indemnity insurance. The engineer should also be asked to check the boundaries and, in particular, that the boundaries on the ground are accurately reflected in the title map. The engineer should also be asked to carry out a planning search and advise you of any relevant matters before you commit to a contract.

  1. Secure a formal loan sanction

Be aware of the terms under which the bank will lend you the funds to complete your purchase. Usually, conditions include life insurance, fire cover and home insurance valuation.

  1. Due Diligence

Your solicitor will carry out due diligence once they have received the contract from the vendor’s solicitor. The due diligence will include the following and a report is to be provided to you as the purchaser; (a) investigation of the title and whether it is leasehold or freehold and report any relevant consequences; (b)  advice on planning in conjunction with the surveyor’s report; (c) investigation of access and services (i.e. water/sewer) at the property; (d) review of relevant property taxes, including local property tax (LPT) and non-principal private residence charges; (e) review and advice on any special conditions in the contract for sale.

  1. Signing the contract

Only once you are satisfied with all of the above will you be in a position to commit to the contract. This process usually takes around four weeks from the payment of the booking deposit. On signing the contract, a 10% deposit is payable less any booking deposit already paid. The vendor then counter signs the contract at which point it becomes binding and the completion date is agreed, which is usually two to three weeks after.

  1. Drawing down the loan

Your solicitor will attend to the drawdown of loan funds and provide a statement of account for you to provide the balance, including stamp duties, land registry fees and costs.

  1. Getting the keys

On completion, your solicitor pays over the balance of funds in return for the title deeds and the keys. You can then look after the transferring of utilities, e.g. organising your electricity, gas and broadband.

  1. Registering the title

Your solicitor will attend to stamping and registration of title and mortgage. Once the registration process is completed, the deeds will be returned to the bank who will hold the deeds during the term of the loan.

While the above is a simplified guide, we hope that it allays some concerns and queries. Difficulties can arise at any stage of this process. However, if you are organised and have trusted advisors on hand, you can ensure that you purchase your new home with minimal stress and worry.

 

Article by Anne-Marie Linehan, Partner in JW O’Donovan Solicitors’ Property Team. Get in touch at mail@jwod.ie or ring 021 7300200.

Mergers and Acquisitions: Heads of Terms

The third in our series on the practical aspects of running a successful mergers and acquisitions transaction, this article looks to highlight the key elements of a Heads of Terms. Please see our news section here for other publications in the series.

  1. What is a Heads of Terms?

When entered into, in the context of a share sale and purchase, a Heads of Terms (which can also be referred to as a Letter of Intent, Memoranda of Understanding or Term Sheet), is entered into relatively early in the transaction for the purpose of the parties recording:

a) The main terms of a preliminary non-binding understanding, intended to lead to a binding contract or series of contracts for an entire project or transaction.

b) An agreement to set out the key terms of a transaction, which contains some binding terms and some non-binding.

c) The terms of a preliminary binding agreement, again intended to deal with certain preliminary matters prior to the signing of a contract to cover the whole project or transaction.

2. Is it legally binding or not?

Above we mention the fact that a Heads of Terms can be non-binding, partly binding or entirely binding with additional terms. The answer to the question therefore invariably depends on what the parties have agreed to at the outset but in the majority of cases we would find that a heads of terms contains only some provisions which are agreed to be binding by both parties. That brings us to the next question.

  1. What provisions are covered in a Heads of Terms?

A standard heads of terms will generally contain provisions including but not limited to:

a) Commercial Terms

This will set out the overall agreement between the parties. For example Investaco Limited intends to acquire 50% of SellCo Limited for a price of €10m subject to completion of financial, legal and commercial due diligence.

b) Time Limits

A deadline for completion of the transaction and execution of a binding Share Sale and Purchase Agreement would generally be included, as well as confirmation of the timelines relating to completion of due diligence.

c) Pre-Conditions

It might be necessary to set out any pre-conditions to completion such as the approval of the Competition and Consumer Protection Commission, consent of existing customers or secured creditors, or even the conclusion of a commercial agreement by the target company with a new customer without which the deal may not be commercially viable for the purchasing company.

d) Confidentiality

Where a separate Non-Disclosure or Confidentiality Agreement has not been entered into then it is usual for the Heads of Terms to contain a binding confidentiality clause with mutual restrictions on both parties, as in most cases confidential information is likely to be exchanged by both parties.

e) Exclusivity

This is usually a binding provision in the Heads of Terms as the Purchaser will want to ensure that the seller is not at the same time using their bid to attract another buyer at a higher price, potentially wasting the buyers time and resources.  The exclusivity clause would generally be limited to a specified time period so as to ensure the buyer has an incentive to complete their due diligence in as an efficient manner as possible.

f) Transaction Advisor Details

Details of the advisors appointed by each party including financial and legal.

g) Costs

A provision setting out that each party will be liable for its own costs, or where the parties agree that one party would be responsible for the costs of a portion of or all of the other parties costs in particular circumstances.

h) Jurisdiction and Governing Law

This is not an exhaustive list and every heads of terms will be different in its form and content.

Conclusion

This is a just a flavour of the content of a Heads of Terms which can be as simple or as complex as the parties require. As stated above it is generally the pre-cursor to a more complex and biding agreement to follow with care required to ensure that the parties don’t commit to a binding agreement where this was not intended.

In the next article, we will look at the advantages of using heads of terms.

If you would like more information on this topic or any other of the topics in our series on Mergers and Acquisitions, contact:

JWOD Partner Patrick Bradley appointed Chairman of the Law Society’s Probate and Trusts Committee

J.W. O’Donovan Partner Patrick Bradley, has been appointed as Chairman of the Probate and Trusts Committee of the Law Society of Ireland, which monitors and advises its members on best practice in this area as well as making representations on behalf of the Society to relevant stakeholders.

Patrick practices in estate planning, probate and tax law along with commercial and property law. He has extensive previous experience of lecturing at the Law Society, as well as the Institute of Taxation, and is a member and past Chairman of the Law Society’s Taxation Committee.