Irish receiverships and liquidationsmarket
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The Irish Examiner publication is the latest business to be restructured using a so called pre-pack insolvency transaction. It has been reported that at least one creditor has initiated proceedings to challenge the Irish Examiner transaction. If that case proceeds to trial, it will be one of the rare Irish cases in which the courts are asked to analyse the validity and basis of a pre-pack.
Pre-pack structures can allow a change in ownership of a business, a continuance of trade irish receiverships and liquidationsmarket the preservation of employment without the loss in value that can arise where a business is operated during an insolvency process while a purchaser is being sought.
In Ireland a corporate insolvency process includes a receivership, liquidation or an examinership. Receivership pre-packs typically involve a bank or other secured lender appointing a receiver over the assets of a irish receiverships and liquidationsmarket experiencing financial difficulty.
Prior to the formal appointment of the receiver, a purchaser is identified and terms of sale are agreed for the sale of the assets in question. The irish receiverships and liquidationsmarket then implements the pre-agreed terms immediately on or subsequent to his appointment. The devaluation of goodwill and the deterioration of key relationships with employees, suppliers and customers that can result from a protracted corporate insolvency process is avoided and creditors can achieve a higher irish receiverships and liquidationsmarket than might irish receiverships and liquidationsmarket be the case.
Such cases include those where creditors may be prejudiced due to a lack of time to market the assets in question. This concern is more acute where the sale is to a party connected to the insolvent business such as the management, directors or shareholders. Insolvency practitioners must be able to demonstrate compliance with their statutory duty to obtain the best price reasonably obtainable at the time of the sale of the asset.
For this reason, great care must be taken to ensure that appropriate valuations have been obtained for the assets. The insolvency practitioner must also ensure that he is aware of and has taken account of any previous marketing activities carried out in relation to the assets, whether by the company or the lender.
In England and Wales where unlike in Ireland insolvency practitioners must hold a licencedetailed guidelines for the conduct of pre-packs have been adopted by the professional bodies responsible for the licensing of insolvency practitioners. Those guidelines were introduced irish receiverships and liquidationsmarket increase transparency for creditors and confidence in the marketplace regarding the use of pre-pack administrations.
In the absence of irish receiverships and liquidationsmarket such guidelines in Ireland, the critical standard for the insolvency practitioner is to ensure that he obtains the best price reasonably obtainable for the assets at the time of sale, a duty imposed on him by the Companies Acts.
Pre-packs are not suitable in all cases and it will not always be possible for the insolvency practitioner to carry out any marketing of the assets, the subject of the sale, or to obtain comprehensive valuations for the assets in advance of the sale. Furthermore, certain company law provisions might, in some circumstances, work to delay a sale, for example where the sale is to a connected party. In such cases a lengthier period of time will be required to market and sell the assets.
Whilst examinership has been used for certain forms of transaction very similar to a pre-pack, an examiner has a duty to ensure that the investment he recommends is in the best interests of the company and its members and creditors as a whole.
This means that he will be required to follow a process of testing the investment options available before finalising his scheme of arrangement. The absence of formal reporting requirements for pre-packs means there are no statistics available on the use of the process in Ireland, but there are reports of pre-packs having been effected in Ireland in recent times, particularly in relation to retail businesses. Key Contacts Fergus Doorly Partner.