Independent Expert Reports
The statutory requirements can be summarised as follows:
1. The company commissions an independent expert’s report, who is normally an Accountant. This report must contain specific information; most importantly that the company has a ‘reasonable prospect of survival’ as a going concern provided the Examinership is successful, and that the likely result of the process would be more advantageous to the creditors than a winding up.
Further expansion on this crucial ‘reasonable prospect of survival’ point is required from the independent expert. Normally the report will articulate that the company must secure new investment sufficient to facilitate a compromise with its creditors, or scheme of arrangement, to be capable of survival.
2. The independent expert must confirm that there is no deficiency in the finances of the company that is not satisfactorily accounted for and that the company has sufficient funds to trade throughout the period of protection.
3. The independent accountant must supply the Court with the necessary cash flow projections and statements of affairs to validate the conclusions drawn in his report.
Normally the directors or shareholders of a company petition the Courts to have an examiner appointed. However, creditors of the company, both actual and contingent (including the company’s employees) may also do so. In practice, it is rare for creditors of the company to have enough information about the affairs of the company to successfully petition to have an examiner appointed.
Whether the company is likely to attract investment is the key factor having regard to the Examinership option. Among some of the questions that should be considered to determine whether the company is likely to attract investment and is a candidate for Examinership are as follows:
• Is the company likely to survive in whole or in part as a going concern, or is the company ‘terminally insolvent’?
• What are the assets of the company?
• What are the liabilities of the company and how are these liabilities secured?
• Are the assets of the company easily sold?
• Are the assets of the company sufficiently large to justify the costs of Examinership?
• What is the staffing position of the company (number of staff and length of service) and what will their reaction be to the likely changes following Examinership?
• What is the regulatory position of the company including licenses, environmental matters, key customer audits, planning permissions, etc.
• What is the level of outside investment required to formulate a scheme of arrangement to be put to the creditors?
The process to petition to have an examiner appointed is a rigorous one and care must be taken to ensure that all of the statutory tests are met. In addition, it can be a costly exercise and the company must be prepared to commit resources to discharge the costs associated with it.
The IER typically can take one week to prepare and sets out the issues the company has faced and its prospects going forward if restructured. It confirms the employment that will be protected if the company goes into examinership.
The preparation work typically is non-invasive but will likely involve an
afternoon with the independent expert. It is of critical importance that all relevant facts and information are disclosed as part
of the IER as there is an obligation on a petitioner to make an examinership application with utmost good faith.
The report of the independent expert shall comprise the following:
(a) the names and addresses of the officers of the company;
(b) the names of any other bodies corporate of which the directors of the company are also directors;
(c) a statement as to the affairs of the company, showing in so far as it is reasonably possible to do so, particulars of the company’s assets and liabilities (including contingent and prospective liabilities) as at the latest practicable date, the names and addresses of its creditors, the securities held by each of them and the dates when the securities were given to each of them;
(d) his or her opinion as to whether any deficiency between the assets and liabilities of the company has been satisfactorily accounted for or, if not, as to whether there is evidence of a substantial disappearance of property that is not adequately accounted for;
(e) his or her opinion as to whether the company, and the whole or any part of its undertaking, would have a reasonable prospect of survival as a going concern and a statement of the conditions which he or she considers are essential to ensure such survival, whether as regards the internal management and controls of the company or otherwise;
(f) his or her opinion as to whether the formulation, acceptance and confirmation of proposals for a compromise or scheme of arrangement would offer a reasonable prospect of the survival of the company, and the whole or any part of its undertaking, as a going concern;
(g) his or her opinion as to whether an attempt to continue the whole or any part of the undertaking would be likely to be more advantageous to the members as a whole and the creditors as a whole than a winding-up of the company;
(h) recommendations as to the course he or she thinks should be taken in relation to the company including, if warranted, draft proposals for a compromise or scheme of arrangement;
(i) his or her opinion as to whether the facts disclosed would warrant further inquiries with a view to proceedings under sections 610 and 611 or section 722 ;
(j) details of the extent of the funding required to enable the company to continue trading during the period of protection and the sources of that funding;
(k) his or her recommendations as to which liabilities incurred before the presentation of the petition should be paid;
(l) his or her opinion as to whether the work of the examiner would be assisted by a direction of the court in relation to the role or membership of any creditor’s committee referred to in section 538 ; and
(m) such other matters as he or she thinks relevant.