Reforms to corporate restructure rules essential for economic recovery.
Recent information has shown the levels of insolvencies in 2020 are similar to those of 2019. This may come as a surprise to many, but it is clear that many businesses have been hanging on by a thread, with the help of Covid-19 wages subsidy and other publicly funded supports. Ireland is looking at a situation now, where is can expect the onset of a wave of distressed businesses as we look into 2021. We need a robust, fit-for-purpose and inexpensive process as these cases commence to present. Reduced cost may well lead to restructurings whereby the company can survive, jobs are saved and the ultimate cost to the State will be very significantly reduced.
Following my reaching out to them, in May 2020, ISME submitted proposals to The Department of Enterprise, Trade and Employment seeking to fine tune the examinership process, which is the Irish corporate recovery mechanism. The key to the proposed revisions to the scheme was to reduce the cost of corporate restructuring therefore making it more accessible to small companies. This will be accomplished by removing many of the legal steps in the process currently required as a matter of course; but maintaining access to the Courts should creditors or other stakeholders require judicial oversight of the actions of the Company or the examiner.
In July 2020, the Minister for Enterprise, Trade and Employment, Leo Varadkar TD, commissioned the Company Law Review Group (CLRG), which in turn activated its insolvency sub-committee to examine the ISME proposals. The committee includes top insolvency practitioners; offices of the state, including The Revenue Commissioners, the Office of the Director of Corporate Enforcement and the Attorney General’s office; as well as key stakeholders including ICTU, IBEC and ISME, whose members will be most impacted on by the measures proposed, and are also most likely to benefit from them. The outcome of the sub-committee discussions were submitted to the Minister by the CLRG in its report dated 22nd October 2020 (“the CLRG Report”).
The CLRG Report was compiled following a process including ten weekly meetings and written submissions and clarifications, over which time consensus was reached to fine tune many of ISME’s original recommendations. The detailed analysis of what is required results in a viable and practical scheme that will ensure the survival of many SMEs that otherwise would have no framework to survive the Covid 19 shutdowns, with the attendant protection of vital jobs.
The recent Judicial Co-operation for Economic Recovery in Europe (JCOERE) conference hosted by UCC on Friday 27th November was attended by some 200 delegates from Ireland and around Europe. Contributors from the UK and Netherlands spoke with obvious pride of recent developments in their laws that provide for “debtor in possession” corporate recovery solutions that have recently been made available as corporate recovery options in their countries. These options have been available to financially challenged companies in Ireland for over thirty years.
The measures recommended as a low-cost alternative to examinership contained in the CLRG Report represent the product of over 100 years of collective corporate recovery experience from the contributors, as well as much valued input from industry and state participants. We are fortunate to be thirty years ahead of the UK and the Netherlands in the development of our corporate recovery ecosystem in terms of the law, practice, jurisprudence, and the input of experienced practitioners and judges.
It would be a great pity however, to waste the opportunity to learn from shortcomings in the current system, particularly given the inevitable tsunami of corporate insolvencies arising from the trading disruption caused by the Covid 19 shutdown. These can be avoided by activating the measures contained in the CLRG Report. This should happen in the short term.
The recommendations in the CLRG Report need to be considered and implemented as a matter of urgency. If implemented, the Summary Recovery Process recommended will be an indispensable tool for business owners and practitioners to ensure a company's survival in a time that will be extremely economically challenging, and significantly at no cost to the State.