Directive (EU) 2019/1023 was transposed in Irish law on 29th July 2022 by the SI No. 380 of 2022 European Union (Preventive Restructuring) Regulations 2022. The Regulations provide for added protections for companies struggling with solvency and for creditors of such companies. The objective of the directive is to harmonise and simplify restructuring and insolvency measures throughout the EU.
The Regulations amend existing examinership law in parts 5, 10 and 11 of the 2014 Companies Act. The key changes to Irish law are:
- Companies are now advised to have an early-warning tool to alert directors as to any potential insolvency.
- The fiduciary duty of directors to have regard to creditors’ interests as soon as they become aware of the insolvency has been formalised. There is now a stated duty on a director who believes or has reasonable cause to believe the company will be unable to pay its debts to consider the creditors’ interests, to take steps to avoid the realisation of insolvency, and to avoid threats to the viability of the company.
- Creditors may not withhold performance of contracts to the detriment of a company in examinership, and workers may not enforce claims against the company during this period. The aim of these measures is to allow the struggling company to get back on its feet and continue as an employer and economic entity.
- The Court may now confirm a scheme of arrangement in circumstances where there are dissenting classes of creditors, if the dissenting creditor will be in no worse a position than it would be under the usual liquidation hierarchy of priorities.
The main impact of the regulation is an increased obligation on the directors to remain vigilant as to the company’s financial situation. All companies should ensure that its governance procedures are updated to reflect this, as a director may face personal liability if he or she fails to act or acts wrongfully in circumstances where he or she should have known better.
The above is provided for information purposes and is not intended as legal advice. We, at Fitzsimons Redmond LLP, would be happy to talk to you about ensuring your company has a high standard of corporate governance. Please contact us on 01-676 3257.
By Lisa Quinn O’Flaherty
Partner at Fitzsimons Redmond LLP