Lawyers at Fieldfisher have warned that anyone relying on guarantees in a situation where a company applies for examinership must be “hyper-vigilant” in protecting their security.

Mark Woodcock and Ciara Gilroy believe that, as a result of the economic fallout from COVID-19, more and more companies will be forced to apply for protection from their creditors under the examinership provisions of the Companies Act 2014.

'Very specific'

In an analysis on the firm’s website, they write that the legislation on guarantees during examinership is very specific, with guarantors temporarily benefiting from a company's protection from creditors and guarantees not enforceable during this period.

Under the Companies Act, a guarantors' liability is not affected by the fact that the debt is the subject of a scheme of arrangement, unless the guarantor and the creditor agree otherwise.

The Fieldfisher lawyers warn, however, that creditors relying on guarantees should be aware of the steps required to ensure they remain enforceable when examinership ends.

Written notice

"When an examiner serves notice of a meeting to consider a scheme of arrangement on creditors, any creditor who has a guarantee must serve a written notice on the guarantor offering to transfer to the guarantor, the creditor's right to vote on the examiner’s scheme of arrangement,” they write.

“Where less than 14 days' notice of the creditors' meeting is provided by the examiner (as is almost always the case), the offer must be served on the guarantor within 48 hours of receipt of notice from the examiner,” they add.

The lawyers warn that a creditor who fails to comply with the notice period set out in the legislation will be prevented from pursuing a guarantor if a scheme of arrangement takes effect.