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Examinership, Receivership and Liquidation – what’s the difference?

As the global economy continues to reel from the current downturn many businesses and individuals are facing what seem to be insurmountable financial problems.

The event which demonstrates that an employer is in serious financial trouble can take various forms. Liquidation in the case of a corporate employer, bankruptcy in the case of an individual employer, are perhaps the most obvious examples. But there are other possible indications that an employer has serious financial problems such as receivership or the appointment of an examiner to a company.

The purpose of this article is to explain the distinct roles played by Liquidators, Receivers and Examiners as set under the Companies Acts.

Liquidation
Under Irish law, the liquidation or winding - up of a company, in other words, its legal death can take one of two forms. It can be a winding-up by order of the court (also known as an official liquidation). Far more frequently, however, it will be a voluntary winding-up (which, in turn, may be either a members' voluntary winding - up, or a creditor's voluntary winding - up).

1. A Creditors' Voluntary Liquidation is the most commonly used procedure for dealing with an insolvent company. In summary, this process is usually initiated by the insolvent company, acting through its board. In a Creditors' Voluntary Liquidation, the liquidator is primarily concerned with the interests of the creditors.
2. A Members' Voluntary Liquidation is a mechanism whereby a solvent company, acting through its directors and members, decides to wind-up a company, primarily for the purpose of selling its assets and distributing the surplus to its shareholders.

 
Examinership
Examinership is an alternative to liquidation. The Companies (Amendment) Act, 1990 introduced the examinership process to provide a mechanism for the rescue and return to health of ailing, but potentially viable company.

An application is made to a court of law to appoint an Examiner, an application is usually made by the company itself, but it can be made by the directors, creditors, contingent or prospective creditors - including the employees.

The Examiner's primary function is to evaluate the company's viability, and if it is salvageable, the Examiner is responsible for developing a long-term survival plan. Once an Examiner has been appointed, the company goes under the protection of the court. This means that for a period in which the company is under examinership, no application can be made to wind up the company, nor can a receiver be appointed.

Receivership
Receivership is not usually initiated by the company itself, but rather by its creditors. It normally arises when the company has defaulted on a contract to repay loans or debts outstanding. The Receiver's primary role is to recover the money owing to the creditor and, in theory; the company can continue trading while in Receivership.

However, in order to recover the creditor's money the Receiver may have to sell off assets to the point that the company can no longer continue to operate. In those circumstances, the company is likely to end up in Liquidation. Although historically and virtually exclusively a process used by Banks as a means of recovery it is a procedure of last resort in the lender-borrower relationship.

Seeking Commercial Law Advice

For further information and advice regarding the above processes and corporate restructuring, please contact Malcomson Law by calling 01 8744422 or complete an Online Enquiry Form . A solicitor who specialises in the commercial law area will contact you to advise you of your legal rights and entitlements.

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