The Companies (Miscellaneous Provisions) (COVID-19) Act 2020 (the Act) was passed by the Dáil on 30 July 2020 and, once commenced, will make temporary amendments to, inter alia, the Companies Act 2014 (the Companies Act) in order to address certain operational challenges that COVID-19 has presented to Irish companies.
Minister of State at the Department of Business, Enterprise and Innovation, Robert Troy, described the Act as “an important first phase of work in the area of company law to address real practical issues facing business in terms of compliance and pressures on solvency.”
The Act has been enacted (i.e. signed into law), but has not yet been commenced. Once commenced, most of its provisions (including those outlined below) will apply until 31 December 2020 (the Interim Period), with the possibility of an extension to the Interim Period as considered appropriate, following consultation with the Minister for Health, in order to either control the spread of or mitigate the economic effect of COVID-19.
In this note, we outline the amendments that the Act makes to the law relating to winding up of companies and to the examinership regime.
Winding up – increase of statutory debt threshold
As a response to the negative impact that COVID-19 has had on the liquidity of many companies, the Act proposes to increase the statutory debt threshold for the commencement of a winding up.
Section 570 of the Companies Act presently provides that a company shall be deemed to be unable to pay its debts if a creditor serves, on the company, a demand in writing, requiring payment of a sum in excess of EUR10,000 (or EUR20,000 in the case of multiple creditors acting together) and the company has not discharged payment of the debt within 21 days following the service of the demand.
The proposed amendment set out in the Act provides that, during the Interim Period, the minimum debt threshold at which a company is deemed unable to pay its debts (and before a petition in respect of a winding up can commence) will be at least EUR50,000 in respect of both individual debts (an increase of EUR40,000 on the current threshold) and those debts where two or more creditors are acting together (an increase of EUR30,000 on the current threshold).
These amendments will be welcomed by companies dealing with cash flow challenges as a result of the COVID-19 crisis and should assist those businesses that are capable of survival post-pandemic by ensuring that demands made for relatively small debts during the Interim Period will not result in their winding up.
Examinership – extension of period of protection
Examinership is an Irish corporate rescue and restructuring procedure, whereby an insolvent company is afforded court protection for a specified period to enable it to negotiate with its creditors, write down its debts and seek fresh investment. The process involves the court placing a company under its protection to enable it to appoint an examiner to investigate the affairs of the company and to report to the court on the prospects of the company’s survival.
Where a company is in examinership, the Act makes provision for a longer period within which the examiner’s report must be submitted to court. The current timeframe under Section 220 of the Companies Act is 70 days, with the possibility of a 30-day extension where the court is satisfied that the examiner would be unable to provide the report within the standard timeframe. The Act includes an additional extension of 50 days, allowing a total of 150 days within which the examiner can submit their report to the court, where the court is satisfied that the examiner has demonstrated that there are “exceptional circumstances” arising in respect of the relevant company to justify the extension. The concept of exceptional circumstances as provided for by the Act is quite broad and includes (but is not limited to) “the nature and potential or actual impact of COVID-19 on the company.”
The amendment is intended to provide companies in examinership with a longer period of protection within which a suitable investor can be sourced and with additional time to negotiate with their creditors. It should also allow for a more flexible timeframe to deal with issues arising on more complex examinerships.
The Act is expected to be commenced imminently. It complements the extensive range of financial supports already made available to businesses by the state in response to the ongoing crisis and it is hoped that, once commenced, it will provide additional breathing space to struggling companies.