New legislation opening the option of examinership to small- and medium-sized companies by allowing the Circuit Court to handle more such cases passed its first test yesterday when Celbridge Playzone emerged from the process on a "sound financial footing" and with all 33 jobs saved.
Through the last seven years of recession a lot of interested parties, and specifically insolvency practitioners, have been calling for the bar to be lowered so more companies could avail of the system whose primary aims are to rescue troubled businesses and save jobs.
That finally happened last year, and Celbridge Playzone was the first candidate. After Naas Circuit Court approved its rescue plan – scheme of arrangement – yesterday the examiner, Joe Walsh of Hughes Blake, predicted that a large number of SMEs that would otherwise “be destined for insolvency” could now look to examinership to protect themselves and their jobs.
To qualify for examinership companies must demonstrate that they have a reasonable prospect of survival. The courts apply this relatively strictly, but once it is passed the business gets protection from its creditors for up to three months while the examiner comes up with the scheme of arrangement. That frequently involves a haircut for creditors, including the banks.
Property debt lies at the root of the problems facing many SMEs . Compared to the hair-raising sums owed by some developers those debts are likely to be small, but there are a lot of them and they will add up.
The prospect of large numbers of SMEs being restructured through a court- protected process could pose a headache for the banks. It will thus be interesting to see how they react.
At the beginning of the crisis many banks supported examinership applications by groups such as that run by developer Liam Carroll, which had little or no merit. However, they understood that if those property empires fell, so would they. The picture with SMEs is different, and it would be no surprise to see the banks flexing their muscles and opposing quite a few applications.
