What is an examinership?

Often mentioned in the media, examinership is a process not just for large companies, but also for SMEs. Examinerships often save jobs and prevent companies from going bankrupt, allowing them to continue operating.

In an examinership, a company is afforded the protection of the court in order to maintain its existence. Typically, this process results in the protection of company assets, the reduction of debt to creditors, and the retention of business control by the directors while the process is being carried out under the supervision of a practicing accountant.

Insolvent companies can benefit from the examinership process if they want to explore all options for survival.

An examiner investigates the affairs of the company and reports on this to the court. Companies that fall into debt but remain financially viable will often use this process.

If the court decides to put a company into examinership, it will consider the report of an independent accountant, and may also hear from creditors.

The examinership procedure benefits companies of all sizes where they have a good business but are having cash flow difficulties.

By working together with all creditors, a settlement can be reached that prevents job losses and allows companies to continue operating. Once a company is in examinership, creditors will not be able to act to appoint a receiver or wind up the company, at least during the examinership process.

Within seventy days of the appointment of the examiner, a company must prepare a proposal outlining how the company can pay its debts and survive going forward.

This can include:

• the termination of certain contracts
• requirements that portions of the company’s debts be written off
• surrender of property leases
• injection of capital by a third party
• termination of certain contracts

• A company’s examiner will have the power to meet with its directors and to take any steps necessary to stop proceedings that may harm the business.
• Examiners place creditors into different categories and then propose a course of action for dealing with them.
• If shareholders and creditors feel that the examiner’s proposal clashes with their interests, they may object in court.
• Examinership costs include professional fees, but investing in examinership could prevent a company from going bankrupt.
• An examinership may be granted only if the court is satisfied that a company is unable to pay its debts and that there is no outstanding court order to wind up the company.
• In addition, a company should be able to state that it has not appointed a receiver.
• The appointment of an examiner should be carefully considered, and legal and accounting advice should be sought.