We use cookies to collect and analyse information on site performance and usage to improve and customise your experience, where applicable. Click OK to use our website.

Openness and trust key for struggling companies

10 Jul 2020 / business Print

Openness and trust key for struggling companies

Restructuring experts at Mason, Hayes & Curran (MHC) have stressed the importance of openness and transparency for companies facing financial difficulties as a result of the disruption caused by Covid-19.

They were speaking at the legal firm’s latest webinar on the restructuring options for Irish businesses as pandemic restrictions ease. MHC says the payment of creditors and lack of cash flow are now big issues for some businesses.


Maurice Phelan, head of restructuring and insolvency at MHC, said it was important for companies struggling to pay creditors, landlords or banks to have a realistic plan in place, and that open, consistent and timely communication with creditors was key.

Mr Phelan said that in all recent cases where agreements on temporary or short-erm rent reductions were successfully negotiated, “tenants engaged openly from the outset” and were able to display a clear plan to recovery.

“Failure to engage with creditors creates distrust,” he warned, adding that it could be difficult to win that trust back.


Mr Phelan outlined the options for companies facing debt problems. These include agreeing arrangements with some key creditors outside a formal court process, though this option contains a risk of being deemed an unfair preference.

Another option is a formal arrangement under the Companies Act, that would be binding on all creditors if the company could secure the support of 75% of creditors in number and value. This does not need court approval, but can be appealed by a creditor who feels unfairly treated.


The company can also petition a court for the appointment of an examiner to facilitate the survival of the company.

The legal test for the court is whether there is a reasonable prospect of survival for the whole or part of company as a going concern, but Mr Phelan pointed out that the court had the discretion to dismiss an examinership petition even if the legal test had been passed.

There is also the option of a formal scheme of arrangement under the Companies Act, which can become binding on all creditors. This process is “very flexible”, according to Mr Phelan, but requires up to two applications to court, which increases costs and takes time.


MHC restructuring and insolvency partner Frank Flanagan also urged companies to engage upfront with banks as it might be possible to engage in a consensual restructuring of debt.

He stressed that the attitude of banks and essential suppliers is crucial if a company goes for examinership. “Support is much less likely if they believe the company has not been transparent,” he said.

Mr Flanagan also advised that Circuit Court examinership, which is available to small companies with turnover of less than €8m, does not save much money, especially if the petition is heard outside Dublin, where most of the lawyers and accountants who are expert in examinership are based.

Gazette Desk
Gazette.ie is the daily legal news site of the Law Society of Ireland