The European Union (Preventive Restructuring) Regulations 2022 (SI 380/2022) (“PRD”) commenced on 27th July 2022
Some of the key provisions of the regulations are:-
Early Warning System
Regulation 7 provides that a company director may have regard to an Early Warning System (EWS). The purpose of an EWS is to alert companies of a situation, so that they can act to prevent insolvencies and allow them to take steps to avoid or overcome insolvency.
The EWS being made available by the Corporate Enforcement Authority on its website sets out useful information and corrective steps that viable businesses need to take in order to respond and recover thereby helping such companies to maintain employment or minimise job losses.
Directors’ Duty to creditors
Prior to the Regulations, a directors’ duty to creditors in the period approaching insolvency, often referred to as ‘the twilight zone’, was a common law duty only and was not provided for in the Companies Act 2014 or in any statute.
Regulation 4 provides, on a statutory basis, that the director’s duty to creditors be imposed where there is a likelihood of insolvency. This duty is owed by the directors to the company and will be enforceable in the same way as any other fiduciary duty owed to a company by its directors.
Sec 224A – A director of a company who believes, or who has reasonable cause to believe, that the company is, or is likely to be, unable to pay its debts (within the meaning of section 509(3)), shall have regard to –
(a) the interests of the creditors,
(b) the need to take steps to avoid insolvency, and
(c) the need to avoid deliberate or grossly negligent conduct that threatens the viability of the business of the company.
Experience and Expertise of Examiners
Regulation 9 provides that, in addition to the qualification requirements, the court consider the proposed examiner’s experience and expertise, including cross border elements, to perform the role.
Best-Interest-Of-Creditors Test
Regulation 10 provides that the independent expert’s report includes a view on whether the best-interest-of-creditors test is met with respect to the continuation of the undertaking.
Exclusion Of Employees’ Claims
Regulation 11 provides for the exclusion of employees’ claims from the stay provided to companies when a petition for examinership is approved.
Restrictions on Certain Contracts
Regulation 12 explicitly prevents creditors from withholding performance or terminating executory contracts, including essential executory contracts, to the detriment of the company by reason of them commencing an examinership.
Please feel free to contact any of the team on 059-9186776 or info@clscs.ie
Note: The content within the newsletter is provided for information purposes only and does not constitute legal or other advice.
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