# Examinership - option for creditors? Can a creditor take a shareholding in the co?



## Sconhome (28 May 2009)

As a creditor of a company in examinership at the moment I am wondering about a notion I have & is it workable?

If we're lucky the creditors will get 25% of what is owed. With the focus of examinership being to protect the future viability of the company in trouble in order to allow it to trade out of difficulty, one would hope the directors will work hard to save their company.

Rather than writing off the 75% (which I can't afford to do in any event, 25% of something is better than 100% of nothing!!) my question is:

Can a creditor, as part of the settlement, take a shareholding in the company in order to receive a dividend on the back of the company returning to profitability? Once the full debt is settled the shareholding would return to the directors.

It this workable? Has anyone other suggestions?


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## Askar (28 May 2009)

*Re: Examinership - option for creditors?*

This happens for some large companies - banks 'pursuaded' to swap debt for equity. But afaik this is done to avoid insolvency proceedings such as examinership or CVL.

Unlike debt, dividends are discretionary and only payable from net profits - so not available where company insolvent. 

There is the option of preference shareholding where non voting preference shares issued by company with fixed dividends rights but preference shareholder would be lower down in priority then you currently are as an unsecured creditor.


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## JQ2002 (28 May 2009)

*Re: Examinership - option for creditors?*

Unless you are a substantial creditor and your vote value could disrupt the approval of the Scheme of Arrangement, swapping your debt for equity will not be considered.

Having worked on a few examinerships, I have found that creditors sometimes recoup what they've lost through adding a premium to invoices going forward. This works well if you are the sole supplier of a product. However, it could take a few years.

I would also recommend that you attend the Scheme of Arrangement meeting and put your question to the Examiner.


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## Sconhome (28 May 2009)

*Re: Examinership - option for creditors?*

Thanks JQ, I was thinking of it as a mass action by the unsecured creditors who are owed far and away in excess of the preferential 'secured' creditors.

Askar- I understand your point, the company is technically solvent having multiple assets ( not liquidable) which out-weight its liablities, it is not liquid which is why the examinership. The sense is by cutting the creditors off at the knees, the company can move forward back to profitability.

Rather than this cut & run policy, my thought is that as a measure of, dare I say - loyalty or commitment to the creditors, the idea of a share going forward could lighten the blow.

Of course it may push it the other way and make the decision to fold a 'cash rich' option for the directors - ie claim insolvency and pay nobody through liquidation.


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## JQ2002 (28 May 2009)

*Re: Examinership - option for creditors?*

Examinership allows a Company a period of protection from its creditors, the Company is insolvent at the time it enters examination. A petition is presented to the High Court saying that subject to various restructuring of the Company's debt and injection of fresh capital, the Company will have a reasonable prospect of survival. 

Unforturnately, the restructuring will always hit the unsecured creditors the hardest as they will always receive the smaller share of any dividend. On the other side, it does allow fresh investment into the Company and in most cases this can be a third party which obiviously dilute the shares of the original shareholders. So all parties are impaired.

At the end of the Examination, the Company comes out with a 'clean' balance sheet in that, its historic debt is written down and the Company has sufficient working capital to get back on its legs.

The other option is liqudation which will more than likely result in a nil return to the unsecured creditors.

A point to note is that High Court Judges are not in favour of giving Companies a life line just for the sake of it, in a recent case, Justice Peter Kelly argued with the Petitioner that the Company did not have a reasonable prospect of survival.


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## jack2009 (3 Jun 2009)

*Re: Examinership - option for creditors?*

Are you still supplying the company?  If what you are supplying is viatal to the survival of the company you can demand payment in full under section 10.

Otherwise you are in trouble and I would doubt you will even see 25% return!

also the number of companies surviving examinership is quite low so if you stick with this company going forward be very tight with credit control.


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## JQ2002 (3 Jun 2009)

*Re: Examinership - option for creditors?*

Under section 10(2) of the 1990 Amendment Act , an Examiner may certify liabilities incurred by him which are necessary to the survival of the company and its undertaking as a going concern. These certified liabilities are treated as expenses of the Examinership and are accorded priority in any compromise or in any subsequent receivership or winding-up.

If you are supplying a component that is necessary for the continuance of trade during the examination, you should defo request a Section 10 cert off the examiner.


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## foxylady (19 Jun 2009)

*Re: Examinership - option for creditors?*

what about unsecured creditors who have been recently offered 150 euro from 15k and an end to a contract thats long overdue for places not even built, why on earth would they want to vote in favour  when they have been totally screwed


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## jack2009 (20 Jun 2009)

*Re: Examinership - option for creditors?*

That the trick, the examiner only needs the approval of one class of creditor is secured creditors, preferential creditors or unsecured creditors.  you are an unssecured creditor and suffering because the examiner went to seek the approval of the preferential creditors.  you can be sure the preferential creditors are getting a decent amount at your loss!


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## foxylady (21 Jun 2009)

*Re: Examinership - option for creditors?*



jack2009 said:


> That the trick, the examiner only needs the approval of one class of creditor is secured creditors, preferential creditors or unsecured creditors. you are an unssecured creditor and suffering because the examiner went to seek the approval of the preferential creditors. you can be sure the preferential creditors are getting a decent amount at your loss!


 

Yeah but if all the unsecured vote against surely this must nake a difference


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## jack2009 (21 Jun 2009)

*Re: Examinership - option for creditors? Can a creditor take a shareholding in the co*

Nope the Examiner only needs the approval of one class of creditor.


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## foxylady (22 Jun 2009)

*Re: Examinership - option for creditors? Can a creditor take a shareholding in the co*



jack2009 said:


> Nope the Examiner only needs the approval of one class of creditor.


 
Fair enough, but when they present this to the judge , surely the judge would take this into account also.


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## Sconhome (22 Jun 2009)

*Re: Examinership - option for creditors? Can a creditor take a shareholding in the co*

Foxylady, by virutre of the amount you are talking about I guess we are dealing with the same examiner and company.

I am a trade creditor and it looks like heading for the High Court to discover and divulge the full depths of the money carousel that this company was involved in with its directors and associated companies.

As jack2009 says, our votes are irrelevant as both the banks and the revenue commissioners as secured creditors have accepted the proposal of the examiner. Although at the meeting today the revenue commissioner reacted to some of the questions posed by the trade creditors and hopefully a full revenue audit will occur.


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## jack2009 (22 Jun 2009)

*Re: Examinership - option for creditors? Can a creditor take a shareholding in the co*

The sad fact is that the judge does not really care about the unsecured creditors as long as they are getting payed something.  The reason being that the examiner will be saying that what the creditors are getting under the proposed scheme is better than what they would be entiled to if to if the scheme fails.

I am not familiar with the case in question but very interested to learn more on Sconhome's comments regarding the "money carousel"!


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## foxylady (22 Jun 2009)

*Re: Examinership - option for creditors? Can a creditor take a shareholding in the co*



Sconhome said:


> Foxylady, by virutre of the amount you are talking about I guess we are dealing with the same examiner and company.
> 
> I am a trade creditor and it looks like heading for the High Court to discover and divulge the full depths of the money carousel that this company was involved in with its directors and associated companies.
> 
> As jack2009 says, our votes are irrelevant as both the banks and the revenue commissioners as secured creditors have accepted the proposal of the examiner. Although at the meeting today the revenue commissioner reacted to some of the questions posed by the trade creditors and hopefully a full revenue audit will occur.


 

If this is the case why bother dragging people to these meetings and instead just present it as a fait accompli.   The whole thing is scandalous


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## foxylady (22 Jun 2009)

*Re: Examinership - option for creditors? Can a creditor take a shareholding in the co*



jack2009 said:


> The sad fact is that the judge does not really care about the unsecured creditors as long as they are getting payed something. The reason being that the examiner will be saying that what the creditors are getting under the proposed scheme is better than what they would be entiled to if to if the scheme fails.
> 
> I am not familiar with the case in question but very interested to learn more on Sconhome's comments regarding the "money carousel"!


 
I would hardly called 150 euro something and if the judges think like that well then its a sorry state of affairs and will make people think twice about purchasing in a new development in the future


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## Sconhome (22 Jun 2009)

*Re: Examinership - option for creditors? Can a creditor take a shareholding in the co*

Jack2009 - 
The quite obvious situation which can only be alluded to with the use of the term 'alledged' is this:
The directors own a series of companies under a holding company which used company A to purchase the site, which contracted company B to develop the site and company C to engage a main contractor to build the houses.
Company C is in examinership having paid very few trade creditors, while company A & B retain their ownership and title of the land and properties.
Company C is also alleged to have conducted work for the directors at rates well below market cost resulting in a loss occuring which is subsidised by the trade creditors, bank and depositors on homes.
This money, in the region of €100m has been passed around the companies and is now hidden, the examiner, today had no knowledge of its whereabouts!!
This money has been redirected (alledgedly) from the people who are due payments and the 'downturn' is blamed for the loss of money. The money has skipped about in a manner that is not clear to the examiner, but it is no longer in the company C, that every person & business believed they were dealing with.

I would hope that you are contradicted in this case with your view on the judges. The blatant misrepresentations that occured here have to be dealt with, if not by the judge, cetainly by the ODCE and revenue commissioners.


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## foxylady (22 Jun 2009)

*Re: Examinership - option for creditors? Can a creditor take a shareholding in the co*



Sconhome said:


> Jack2009 -
> The quite obvious situation which can only be alluded to with the use of the term 'alledged' is this:
> The directors own a series of companies under a holding company which used company A to purchase the site, which contracted company B to develop the site and company C to engage a main contractor to build the houses.
> Company C is in examinership having paid very few trade creditors, while company A & B retain their ownership and title of the land and properties.
> ...


 

I would definitely have to agree with here. The examiner should be making this company pay a contribution order, which will tkae the monies owed from their other companies, but seems like the examiner might be just as bad


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## jack2009 (22 Jun 2009)

*Re: Examinership - option for creditors? Can a creditor take a shareholding in the co*

Thanks for that Sconhome.

Sorry I do not mean to sound so negative towards the judge but really just trying to stress that the judge is not only interested the amounts due to creditors.

Sounds like a very interesting case, I really think that the Revenue Commissioners should step it up a gear!  I am no tax expert but I do understand that these structures are common and that one of the main reasons for these structures is to avoid paying taxes.  But to see the schemes to be used to avoid paying creditors is crazy.

If only there was someone out there with deep pockets to take a case against groups such as these.

Are there not rules against related companies doing work for each other at anything other than market value etc?  Also, from what has been invoiced to date how much is outstanding from company A to C?  Where did the 100million come from that is alledgedly been redirected?

Sounds like a complete mess!!!


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## foxylady (22 Jun 2009)

*Re: Examinership - option for creditors? Can a creditor take a shareholding in the co*

"





jack2009 said:


> Thanks for that Sconhome.
> 
> Sorry I do not mean to sound so negative towards the judge but really just trying to stress that the judge is not only interested the amounts due to creditors.
> 
> ...


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## jack2009 (22 Jun 2009)

*Re: Examinership - option for creditors? Can a creditor take a shareholding in the co*

Unfortunately High Court Applications dont come cheap hence why I call the Four Court the Four Gold Mines.

Unfortunately, the system can seem unfair at times.

But at the same time, tight credit control can avoid companies ending up in such positions.


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## foxylady (23 Jun 2009)

*Re: Examinership - option for creditors? Can a creditor take a shareholding in the co*



jack2009 said:


> Unfortunately High Court Applications dont come cheap hence why I call the Four Court the Four Gold Mines.
> 
> Unfortunately, the system can seem unfair at times.
> 
> But at the same time, tight credit control can avoid companies ending up in such positions.


 
By protecting these such companies, this country is spitting in the face of the consumer and leaving them open to all sorts of injustices.


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