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Irish Examiner
9 hours ago
- Business
- Irish Examiner
Legal guides to rescue or liquidation
Rising interest rates and patchy post-pandemic demand are driving more Irish companies into difficult territory. When the balance sheet tips, four statutory routes exist: examinership, the Small Company Administrative Rescue Process (SCARP), liquidation and receivership. Each route triggers a different playbook for owners, lenders and employees, yet the boundaries overlap. Choosing well and choosing early decides whether a firm re-emerges or disappears. Shane Harron, partner at Dillon Eustace. Shane Harron, partner, Restructuring, Insolvency and Commercial Litigation, Dillon Eustace, sketches the purpose of examinership: 'Examinership is a rescue mechanism for companies in financial distress that meet certain criteria. It is generally considered to be a successful and flexible process designed to allow companies to continue to survive difficult periods.' Court protection freezes creditor action for up to one hundred days while an independent examiner prepares a scheme of arrangement. Directors stay in charge day-to-day and work with the examiner on investment, cost cuts or debt write-downs. SCARP offers similar breathing space to smaller companies but avoids court hearings. David O'Connor, partner at BDO. 'Smaller companies will often prefer the newer SCARP process, because examinership is quite expensive,' says David O'Connor, partner with BDO, whose team prepares independent expert reports for both processes. The same insolvency practitioner acts from start to finish, which trims fees and shortens timelines. In 2024, thirty businesses used SCARP to restructure, according to EY partner Alan Large. Barbara Galvin, partner with William Fry. At the opposite end sits liquidation. 'Liquidation marks the end of a company's life,' says Barbara Galvin, partner with William Fry. A liquidator takes control, sells assets and distributes the proceeds down a statutory waterfall. Solvent liquidations close in under a year, but insolvent cases, from IBRC to Treasury Holdings, can run for a decade when litigation clogs the pipeline. Receivership is narrower again. Here, the secured lender, not the board, fires the starting gun. 'Receivership differs from examinership and liquidation in that it is a process initiated by a company's creditors to realise a secured debt,' Harron explains. Once the charged assets are sold and the lender repaid, the receiver's mandate ends, sometimes in weeks. Speed and Scope Examinership follows a strict clock: seventy days plus a possible thirty-day extension. During that moratorium, creditors cannot sue, appoint a receiver or seek liquidation. SCARP moves faster because it is out of court; the process adviser must file a rescue plan within forty-two days. Liquidation moves only as quickly as asset sales, creditor claims, and disputes allow. Standard solvent cases average six to nine months, but complex insolvent estates stretch far longer. Receivership aligns with asset disposals and often completes within two years. Control and creditor influence Directors retain operational control in examinership and SCARP, yet they do not dictate outcomes. The examiner or process adviser groups creditors into classes, and a majority in at least one impaired class must vote for the scheme. 'Creditor negotiation forms a crucial part of the process,' Galvin says. Once the court, or in SCARP, the process adviser, confirms the plan, dissenting creditors are bound. In liquidation, directors lose all authority on appointment. They also face forensic scrutiny of decisions taken in the run-up to collapse. Receivership sits between the two: directors may still trade the unencumbered parts of a business if the receiver is appointed over specific assets rather than the entire undertaking. Director liability in the insolvency zone Statute now requires Irish directors to prioritise creditor interests once insolvency is likely. Ignoring warning signs carries a personal cost. 'As soon as a company's directors become aware of its insolvency, they should take all necessary steps to preserve the assets of the company for the benefit of its creditors,' Harron says. Liquidators must report to the Corporate Enforcement Authority and, unless excused, bring restriction proceedings against directors of insolvent firms. Sanctions range from a five-year restriction on acting as a director to full disqualification or personal liability for reckless trading. 'There is no statutory obligation to place an insolvent company into liquidation, but directors should only continue to trade where they believe on reasonable grounds that the company can survive,' Large says. Cost and suitability Examinership's court involvement adds expense. O'Connor sees boards hesitate when legal and advisory fees could top €300,000. 'You need to be of a certain size to justify going into the examinership,' he says, pointing out that smaller firms owe far less and cannot fund the process. SCARP cuts that hurdle because one practitioner fills the dual role of independent expert and process adviser, reducing duplication. Despite the options, uptake among SMEs remains modest. 'The number of SMEs availing of SCARP and examinership is not very high,' Galvin says. She blames a lack of awareness and the stigma that any insolvency procedure equals failure. Large adds that many owners wait too long and erode the working capital needed for a viable rescue. Outcomes in practice History shows rescue can work. The Goodman Group examinership in 1990 restructured wartime debt and protected thousands of jobs in the beef industry. More recently, Big Mike's restaurant in Dublin used SCARP to prune debt and safeguard employment. O'Connor's team provided the independent expert report for a nationwide food chain that entered examinership this month. 'There is a requirement for an independent expert to show that if this company goes into examinership, then there's a high probability it will succeed,' he explains. The court accepted the report and appointed an examiner, opening a path to protect what O'Connor calls 'potentially significant' jobs. Large has watched investors step in after balance-sheet clean-ups. 'The process allows companies to continue with a clean balance sheet and facilitate new investments that are essential for safeguarding their future,' he says. Choosing a path No single test determines which option fits. Harron emphasises early diagnostic work: cash-flow modelling, creditor mapping and covenant reviews. Owners must weigh the probability of survival against liquidity, fixed-charge security and stakeholder appetite for compromise. Galvin underscores timing: examinership and SCARP require enough cash to trade through the protection period. Liquidation or receivership may be unavoidable if working capital has already evaporated. Creditors influence direction, too. A lender can pre-empt examinership by appointing a receiver the moment a covenant is breached. Conversely, a successful examinership can bind secured lenders if the courts are satisfied the scheme treats them fairly. Practical steps before a crisis hits Directors can shrink legal risk long before insolvency lawyers arrive. Harron recommends daily cash monitoring and tight board minutes that show decisions and advice taken. Galvin adds that accurate books and records are the best defence against subsequent restriction applications. Large tells boards to scenario-model each pathway while funds are still available: comparing examinership, SCARP, and liquidation costs clarifies the trade-offs and underpins talks with creditors or investors. O'Connor's experience is blunt. 'Sometimes a solution is, guys, you're at the end of the road, you need to go into liquidation,' he says, warning directors against compounding debt once insolvency is obvious. The bottom line Ireland's corporate insolvency framework offers genuine rescue tools alongside orderly termination routes. Examinership and SCARP can salvage viable enterprises if boards act quickly, secure fresh capital and engage constructively with creditors. Liquidation and receivership close a chapter but still demand disciplined governance to avoid personal fallout. The legal pathway is never chosen in the courtroom; it is chosen months earlier in board meetings where directors either confront the numbers or flinch from them. In a tightening credit cycle, that distinction will decide which Irish businesses live to trade another day and which do not.
Irish Examiner
a day ago
- Business
- Irish Examiner
Advisors key to business restructuring
Financial distress rarely arrives overnight. Margins erode, cash weakens, and boardroom optimism obscures early signs of danger. It is in these moments, before insolvency sets in, that expert advisors make the difference between survival and shutdown. Legal and restructuring specialists agree: the earlier the intervention, the wider the recovery options. Shane Harron, partner at Dillon Eustace. 'The biggest mistake companies make is leaving it too late,' says Shane Harron, partner at Dillon Eustace. 'They often hope to trade their way out of difficulty, but that usually leads to more trouble than may have been necessary.' This reluctance is especially acute among SME directors, who may hesitate to incur advisory costs even when solvency concerns are already visible. Under Irish law, the test for insolvency remains simple: can the company pay its debts as they fall due? If not, directors are required to act in the interests of creditors, not just shareholders. 'This has now been given a statutory footing since 2022,' Harron notes. 'If directors become aware of insolvency, they must act to preserve assets for the benefit of creditors.' Red flags and missed signals There is no single indicator of distress, but signs often compound. Harron points to declining profits or difficulties in meeting essential services like rent or electricity. More subtle signals include late payments to key suppliers or unexpected tax arrears. 'Some of the early warning tools include the strategic maintenance of accounting records, regular financial projections, and a consistent analysis of debts and liabilities,' he says. These steps form part of the Companies Act's early warning framework, aimed at alerting directors to financial danger before it escalates. Alan Large, partner in EY's Turnaround and Restructuring Strategy group, adds: 'Typical early warning signs include breaches of financial covenants, deterioration in EBITDA performance, and sustained negative cash flows.' He also cites key non-financial triggers such as unplanned management departures or persistent customer churn. Stephen Scott, head of Restructuring & Recovery at S&W. David O'Connor, partner at BDO, points to behavioural clues. 'Margins may decline, staff turnover might spike, or creditors go unpaid, but often companies don't connect the dots. They just hope it's a bad month.' Stephen Scott, head of Restructuring & Recovery at S&W, is clear: 'Businesses do not fail because of short-term lack of profitability, they fail because they run out of cash.' Yet many companies continue operating without updated forecasts or real-time visibility of their working capital. That can turn a salvageable situation into a terminal one. David O'Connor, partner at BDO. The case for early external advice All four advisors are unanimous: bring in professionals early. 'Ideally, if directors are apprehensive about solvency, they should engage an experienced insolvency practitioner as soon as possible,' says Harron. Delay reduces strategic options and can increase legal exposure. 'Companies may only face one major crisis in a generation. We deal with them all the time,' says O'Connor. That perspective allows advisors to help with prioritisation, from critical payments and staff communications to negotiations with banks and landlords. Scott notes that for SMEs especially, outside advisors can break decision-making deadlock. 'Directors may feel that nobody knows the business better than them, but expert advice brings not just restructuring knowledge but also a third-party perspective that cuts through noise.' Early advisor engagement also protects directors. Large explains: 'If a business continues to trade while insolvent and incurs further losses, directors may face restriction or disqualification. Professional guidance helps avoid that.' Assessment and Triage The first phase of any restructuring advisory engagement is diagnosis. Harron explains: 'We investigate the company's financial affairs, taking account of assets, liabilities, income and obligations. We assess whether insolvency has occurred, and what rescue options may be available.' O'Connor's team focuses on operational fit. 'We examine whether the company is structured for today's market, not yesterday's. You'd be surprised how many firms carry legacy overhead from products or divisions they no longer run.' That mismatch often emerges in underused space, bloated wage bills or historic debt that no longer reflects business realities. 'You might have €500k in rent but only two-thirds of the space in use. Or staff working legacy roles in departments that have shrunk. That needs to be rebalanced quickly,' O'Connor says. Formal Rescue Options Where viable, companies can enter formal rescue procedures. In Ireland, examinership and the Small Company Administrative Rescue Process (SCARP) dominate. Both give legal protection from creditor action while a survival plan is developed. The difference lies in scale and cost. 'Examinership is court-led and suited to larger companies,' Harron explains. 'SCARP is more streamlined and avoids court unless objections arise. It's designed for SMEs.' The process begins with the appointment of an independent expert. 'We provide the initial report in both examinership and SCARP,' says O'Connor. 'That assessment determines whether there is a reasonable chance the company can survive as a going concern.' If accepted, creditors are grouped into classes and vote on a rescue plan. Once approved, by court or process adviser, those classes are bound, including dissenters. Executing the plan Execution demands discipline. 'Advisors play a key role in identifying non-essential expenditure that can be reduced or eliminated,' says Large. Often this includes exiting loss-making contracts, trimming staff costs, or negotiating revised terms with suppliers. Scott highlights the importance of cash control. 'We help businesses strengthen credit procedures, engage constructively with lenders, manage phased supplier payments, and prepare detailed short-term cash forecasts.' Forecasting has become non-negotiable. 'Many companies operate in an information vacuum,' says Scott. 'That's no longer acceptable in a restructuring context.' Common mistakes Restructuring is not linear. It can unravel if boards are divided or if directors fall into wishful thinking. 'We sometimes see directors continue trading in the hope of a miraculous turnaround,' says O'Connor. 'That usually just deepens the hole.' Large adds that hostility between directors, shareholders or lenders often derails otherwise viable plans. 'Restructuring requires cooperation and transparency. A confrontational approach delays progress.' Another risk is poor record-keeping. Harron warns: 'Directors must maintain clear board minutes showing the rationale for decisions taken. Those records become critical if the process fails and leads to liquidation.' Insolvency proceedings often trigger scrutiny of directors' conduct, something legal advisors are best placed to manage. As Harron says: Where a company goes into insolvent liquidation or receivership, the liquidator must file a report with the CEA (Corporate Enforcement Authority) and consider whether to bring restriction proceedings against the directors.' These proceedings assess whether directors acted 'honestly and responsibly' in the lead-up to insolvency. If they are found lacking, courts can impose a five-year restriction on holding directorships, or in more serious cases, disqualification. Harron emphasises the importance of pre-emptive action. Directors should keep accurate books and records, seek professional advice at the earliest sign of financial trouble, and document decisions thoroughly. These steps form a crucial defence if proceedings are later initiated. While there is no legal obligation to place an insolvent company into liquidation at the first sign of distress, delay increases exposure. Harron notes that 'the strategic maintenance of accounting records, regular financial projections and a consistent analysis of debts and liabilities' form part of the Companies Act early warning framework, tools that, if properly used, can guide directors through uncertainty and reduce personal risk. Strategic outcomes Sometimes the path is salvage. O'Connor shares a recent case: 'A national food chain entered examinership. We prepared the independent expert report, and the court appointed an examiner. That gave them space to restructure. It protected jobs and kept the brand alive.' Other times, value is recovered even in liquidation. Harron notes a case where the company had lost its overseas licence. 'The liquidator reinstated the licence, completed manufacturing, and extracted higher value than by simple asset sale. Creditors benefitted.' Governance, ESG and structural complexity Modern restructuring involves more than cash and contracts. Governance, ESG and tax efficiency now feature prominently. 'Governance failures are closely examined in formal processes,' says Large. 'Sophisticated lenders now ask about ESG and strategic alignment before funding.' Group structures also require scrutiny. 'Even mid-sized businesses can have overly complex structures that add cost and risk,' says Scott. 'Restructuring presents a chance to streamline and unlock value.' Strategic restructuring is about timing, clarity and decisive action. Directors who confront distress early and engage advisors improve their odds of recovery. Those who delay may find that the path to rescue has narrowed or closed entirely. In today's climate, where cash runs tighter and lender tolerance is thinner, that distinction can be fatal.
