As businesses respond to COVID-19, it’s important to remember that with the right support and strategies in place, significant challenges can be overcome.
In the final part of our ‘Spotlight’ series on examinership, Dessie Morrow, Corporate Advisory Director, writes about companies which have engaged in the examinership process due to testing times.
We have been fortunate to work on some really good cases with companies across various industries which have successfully exited the process.
1. Digital Marketing Services Company
This was a 2017 examinership of an operating company based in Dublin which also included a foreign based subsidiary. The Companies entered examinership for the following reasons:
• Operating company was experiencing cashflow problems.
• Difficulty in securing funding from financial institutions due to its complex business model.
• Changing market place and increased competition from companies such as Google and Facebook offering direct marketing services.
• Deficit to Defined Benefit Pension Scheme creditor in the amount of €9m which had a charge over the intellectual property held by the foreign based subsidiary.
The investor in the Companies submitted an investment proposal which was conditional on the repudiation of a number of onerous agreements. In the event these contracts were not repudiated, the investor was not willing to enter into a binding investment agreement.
In this regard, the operating company made an application to the Court to repudiate these contracts and the Court granted the Orders sought. By exiting the onerous contracts, it allowed the examiner secure investment and proceed to formulate a scheme or arrangement.
The option to repudiate onerous contracts or agreements during an examinership also extends to repudiating rental agreements or loss-making contracts. This has proved a very useful mechanism for enabling companies exit onerous lease agreements which would otherwise not be possible.
The Companies successfully emerged from the examinership process with the preservation of 73 jobs.
2. Construction Company
This Company specialised in the erection of wind turbines which carried debts of over €20m, based on prior historical turnover of c. €73.5m for year ended 2017 which had subsequently reduced to c. €9m.
As a result of the falloff in turnover, the debts became unsustainable. In addition, the Company had certain on-going projects which were loss-making.
Numerous discussions were undertaken to ensure the continuation of viable projects and a return of suppliers and contractors to site for the completion of same.
The difficult nature of construction insolvencies was an additional challenge in this case, particularly where parties were owed significant amounts of money and were required to return to site to have any prospect of recovering any of the debts due to them.
In order to secure an investor, it was vital that on-going projects were retained and completed. This required significant cash-flow forecasting reviews to assess funding requirements and ensure future work was paid on the date committed to by company management.
With a large number of on-going projects, some multi-contract creditors and multi-contract customers, there were a significant number of variables to contend with on a daily basis.
During the examinership, it continued on-going viable projects and preserved goodwill.
An investor was secured and a return was provided to all creditors. Having dramatically down-sized operations, it is now engaged on a number of residential developments and has returned to profitability.
3. Facilities Management Services
This was a family-owned business delivering integrated facility management services across a wide array of sectors.
It entered examinership in 2012, as a result of accounting irregularities that were uncovered dating back to 2010.
The main issue was one individual prepared all financial information including bank applications, financing applications and statutory financial statements.
This information was completely inaccurate; it showed that the Company was in a strong financial position when in reality, this wasn’t the case.
It became evident to the Managing Director, who was concentrating on business development and the operational aspect of the business, that any request made regarding financial information was stalled, delayed and generally not available.
In June 2010, the Managing Director engaged a firm of accountants to investigate matters.
Due to the complexity of this investigation, the accounts for the years ended 31 December 2009 and 31 December 2010 were not finalised until September 2011.
These accounts showed a combined loss for the two years of a significant six-figure sum.
The investigation also uncovered underreported tax liabilities of over €700,000, falsification of a tax clearance certificate which was presented as being authentic, on the strength of which additional funding was secured by way of an invoice discounting facility when it was in fact in arrears with Revenue. Other issues were also identified.
Notwithstanding the challenges it faced, the Company, at its heart, had a good underlying business, a strong level of turnover and high number of employees.
The Examiner was able to formulate proposals which secured the survival of the Company and allowed it to return to a normal trading position.
4. Waste Sector
This was a large waste operator significantly indebted to a financial institution which culminated in the appointment of a receiver in 2013. The receiver was appointed to the Company’s business and property, in addition to a small section of property owned personally by one of the company directors.
Following the application for the appointment of Neil Hughes, as Examiner, within 3 days of the appointment of the receiver, the receiver was stood down. An investor was secured during the 100-day period of examinership and not one creditor voted against the Proposals formulated.
This allowed the preservation of all employment, discharge of the secured creditor and ensured a return to unsecured creditors who would have otherwise received zero on a winding up.
How can Baker Tilly help?
If your company is considering examinership as an option, we can guide you through the process and what it entails.
Contact Dessie Morrow on (01) 669 9999 or alternatively, you can send an email to firstname.lastname@example.org.