Examinerships For SMEs – Topical Issue

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I thank the Ceann Comhairle for allowing me to raise this very important topic.

This State has expended enormous amounts of money as aids to businesses affected by the pandemic, and rightly so. The purpose of this has been to preserve businesses and jobs affected by the pandemic. More important is ensuring that as many businesses and jobs as possible emerge unscathed when the pandemic is over and the country begins to reopen. It seems that despite the billions of euro in expenditure, there is still one missing ingredient that would make that expenditure infinitely more effective than it otherwise might be.

I came across the amazing statistic recently that the number of insolvencies in this country between 2019 and 2020 only rose by 1%. This blunt fact masks a different position. Many companies, particularly small and medium-sized enterprises and those at the lower end of that sector, are surviving in a zombie-like state, propped up by State supports and debt forbearance. This raises the bleak and frightening prospect of a tsunami of redundancies, particularly among small and medium-sized businesses, once these props are withdrawn. As I have said, the Government has already spent billions of euro on keeping those businesses afloat. For every one of them that goes under, a part of that money will have been lost or wasted, if one were to put it like that.

Under the examinership system, which was put in place in 1990 and amended in the Companies Act 2014, companies in financial difficulty can avoid going into liquidation by adopting a programme of restructuring accepted by creditors and agreed by the court. Two of every three examinerships succeed, thereby enabling thousands of jobs and livelihoods to be saved. However, only a very small number of SMEs have been able to use the examinership process, simply because the costs are prohibitive due to the fact that the matter must be agreed and subsequently supervised before being signed off by the High Court.

There was an amendment to the legislation to enable certain types of companies to use the Circuit Court but, unfortunately, that has not given rise to an uptake in the number of SMEs and small companies applying for examinership. In cases where the matter was dealt with by the Circuit Court outside Dublin, the costs proved higher than they would have been if the High Court had been the relevant forum.

A new, affordable system specifically tailored to the needs of SMEs must be established urgently and be in place before the pandemic supports and debt forbearance come to an end. A model has been proposed by the company law advisory group and it was published on 22 October last. A version of what was recommended by the group must be passed into law urgently. If such a system is in place when debt forbearance and the artificial State props that applied during the pandemic come to an end, thousands of jobs that may otherwise be lost may be saved. Something similar has been done in the UK, although the model is not exactly appropriate to this country.

It is not a question of reinventing the wheel. I am raising this to stress the urgency of the matter and to ask the Minister of State when we can expect to see the legislation to implement the recommendations of the Company Law Review Group, CLRG.

Minister of State at the Department of Enterprise, Trade and Employment (Deputy Robert Troy)

The State’s longstanding preventative restructuring framework, examinership, is internationally recognised and has proven to be a successful tool for restructuring in its current form. However, the impact of Covid-19 on business has necessitated a review of the existing restructuring process, provided for by the Companies Act 2014, to determine whether it meets the needs of businesses as they respond to the economic impact of the pandemic.

It has generally been acknowledged that small companies encounter particular challenges in availing of examinership. The associated costs pose a significant barrier to access. Covid-19 continues to disrupt economic activity and may eventually give rise to increased numbers of companies in difficulty. While there will be companies among that cohort which should be properly wound up and cease trading, there will also be many companies with viable business models that are capable of being rescued. Small companies employ in the region of 788,000 people across the country, and contribute significantly to our economy. It is in our economic interest that those companies which are fundamentally viable have an opportunity to restructure and access an appropriate rescue process. The programme for Government contains a commitment in this regard.

For these reasons, in July 2020 the CLRG was requested to consider the issue of rescue for small business as a priority. The CLRG is a statutory advisory body charged with advising the Minister for Enterprise, Trade and Employment on matters relating to company law. Its membership is broad and representative of key stakeholders in the area, such as Irish Small and Medium Employers, ISME, the Irish Business Employers Confederation, IBEC, the Irish Congress of Trade Unions, ICTU, the Revenue Commissioners, insolvency and legal practitioners and regulators, making it uniquely well-positioned to provide an informed view on the matter. The CLRG completed its work within an accelerated timeframe, reporting back on 24 October 2020, as acknowledged by Deputy O’Dea. The report sets out a number of policy options for a proposed new process for the rescue of small companies, a summary rescue process which would be distinct from the existing statutory examinership process.

The issue of company rescue extends far beyond the distressed company and impacts on all creditors, which are often other small companies. Any new framework must reflect the delicate balance between sometimes competing stakeholders and provide sufficiently robust safeguards for the protection of creditors, in particular, employees and other small companies. I am acutely aware of the difficulties faced by small companies in our country and I am fully committed to progressing legislation to support their long-term viability and preserve employment. The recommendations contained within the CLRG report have been under active consideration by the officials in my Department. They have made proposals to me on responding to the report and progressing any necessary legislation as soon as is practical. My aim is to have the legislation in place by summer at the latest and ideally, as Deputy O’Dea mentioned, before the supports currently in place cease to be in operation.

Deputy Willie O’Dea

I thank the Minister of State very much for his assurance that it is his intention to have the legislation to provide a system of examinership or restructuring, or whatever one wants to call it, specifically tailored to the needs of these companies in place by summer at the latest. That is most appropriate. If it is done, the necessary addendum to all the money that has been spent on those supports will be in place. I have one question for the Minister of State. I read the report of the CLRG and I note that there were certain fundamental matters on which there were fairly robust differences of opinion. Will the Minister of State take very careful account of those members of the CLRG whose opinion was that it is absolutely essential and critical that in any new system of examinership or rescue, such as is being proposed, the question of an automatic stay of execution in relation to creditors proceeding to put the company into insolvency should apply from a very early date? This could be possibly from the date on which the directors decide on this course of action or, at worst, from the date of the meeting of the creditors and shareholders approving that course of action. Second, will the Minister of State provide me with an assurance that whatever form the legislation takes, and we will have to debate it in depth, it will try to keep these matters as far away from the courts as possible, so that referral to, and involvement of, the courts will be very much a last resort?

Deputy Robert Troy

What I will say is that the proposed new process for the rescue of small companies, the summary rescue process, will be very much distinct from the existing statutory examinership process. That is our intention. We intend to put the proposal out for public consultation. That will happen imminently. We certainly welcome the views and suggestions of all parties on how we move it forward. We are acutely aware that it must be done swiftly. As Deputy O’Dea said, when supports to businesses inevitably taper off as the restrictions lift, we want to ensure that as many sustainable businesses as is practically possible are protected and enabled to restructure in a timely and efficient fashion. That option is not currently available to them and I want to change that. It is my intention and that of the Department to move this process along as swiftly as possible. Obviously, that is partly in our control partly outside of our control, for example, in the case of pre-legislative scrutiny in the Oireachtas committees. I hope that all parties in the House will see the benefit of ensuring robust legislation is in place in this regard and that they will welcome it in order that we can advance this matter without further delay. There will be further engagement with stakeholders in the next number of weeks and we can move the process on from there.

 

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