Léim ar aghaidh chuig an bpríomhábhar

Special Committee on the Companies (No. 2) Bill, 1987 díospóireacht -
Thursday, 24 May 1990


Question proposed: "That section 170 stand part of the Bill."

This is the section, as I understand it, that the examiner is of the opinion that a company can be saved. He is also of the opinion that this would be more advantageous to the members and the creditors as a whole than a winding up. Could I, first of all, ask does "the members as a whole" mean 51 per cent of the members? Would that constitute the members as a whole or the creditors as a whole? Does that mean 51 per cent, or does "as a whole" mean 80 or 100 per cent? Does it have to be both, a majority of the members and a majority of the creditors or is it possible that he could decide to formulate proposals for a compromise on the basis that it was clear that it was in the interests of a majority of the members and, let us say, a minority of the creditors.

We are not going for all. If we want 100 per cent let us say 100 per cent overall creditors. Perhaps I should elaborate on the section rather than picking pieces out. This section sets the scene for the second phase of the examiners involvement in a company rescue. Where the examiner's report under section 167 expresses the view that the company should be wholly or partly saved by reaching agreement on a rescue plan with its creditors, members etc. and that it would be more advantageous than a winding up in general, no formal court case would be held on receipt of his report at that stage. Instead the examiner would be required to formulate in greater detail his rescue proposals, put these to the creditors and members and report back to the court within 42 days of his appointment or such longer period as the court may allow.

This section and following sections will only, therefore, come into play where the examiner is of the opinion that the whole or part of the company would be capable of survival as a going concern. Furthermore the examiner must consider that an attempt to continue the whole or part of the undertaking of the company would be more likely to be more advantageous to the members as a whole and to the creditors as a whole than a winding up of the company. Of necessity the examiner's proposals will affect the interests of various parties, in particular the members and creditors. Under this section the examiner will have to consult with these parties and include their reaction in his report to the court. The deadline set for these consultations and report to the court is 42 days from the date of the examiner's appointment or such longer period as the court may allow. The examiner's report will have to be in accordance with section 171 and be submitted to the court when completed.

Arising from amendments made in the Seanad the Bill now provides that in addition to submitting it to the court copies of the examiner's report will only be delivered to the company and to any interested party on application. The court may, however, order the omission, as I have already detailed, of sensitive information in the latter case. The availability of the examiner's report to these interested parties will ensure that no person who has a contribution to make can have any complaint about being denied access to relevant information. Also arising from the amendment introduced in the Seanad, the Bill now provides that the court can in exceptional cases extend by a maximum of 30 days the time limit of three months during which a company is under the protection of the court. That, hopefully, will clarify some of the points that have been raised.

It does not actually clarify the point I raised — the meaning of the words "as a whole".

We use the words "as a whole" advisedly. If we were to satisfy all the creditors, we would say all the creditors or members. It does not specify X percentage as a whole.

What does it mean? It looks like a political term rather than a legal one.

If the examiner is satisfied that it will be a going concern, we now have a situation under this Part where the examiner is taking into account interested parties who heretofore under company law as it stands do not have a say whether it continues or not, in other words the employees, for example; there is no provision under existing company law for them to have any right of access to a court to decide anything. In the context of this section the members as a whole and the creditors as a whole, if it is a going concern and proves itself as such, which means its assets exceed its liabilities and it can continue commerically, there will be no question of a conflict of interest between the members and the creditors in that case because the undertaking is going ahead. As regards the hypothetical point whether this applies where there is a conflict of interest, if it is a going concern, if the creditors can be paid, they will have no problem about the company going ahead and the members certainly will not have because their jobs will be safeguarded. You are talking about the parties who are interested in the proceedings, let them be creditors, directors or members. Once the examiner is satisfied that it can go ahead it will be in the interest of those parties that it would go ahead. The point raised about what happens if there is a conflict of interests. If, in the opinion or the examiner, it will be a going concern and the court is satisfied on foot of his report that it will be a going concern, then there cannot be a conflict of interests because the creditors and members have their interests protected: one is going to be paid his debts, the other is going to have his job safeguarded. Can you give me an instance where there is a conflict between a creditor and a member if a business is going to continue as a going concern?

Yes, I think I can. My understanding is that the proposals for a compromise or scheme of arrangement would envisage situations where people were not being paid in full. If so, you could have a case in which, say, taking the creditors as a whole, the preferential creditors would be very unhappy with a proposed scheme of arrangement on the basis that they would know if the company went bust they would get 100 per cent. The unsecured creditors, the general creditors would probably not be sure how they would feel about it. The other category of creditors, the employees, would obviously want the company to survive. You have a sort of a spectrum from the preferential creditors, who would prefer a liquidation, right across to the creditors and the employees who would prefer, in almost any circumstances, that the company should continue. How we are asking the examiner, without any criteria from the legislature, to decide what is in the interests of these people as a whole. How is he goind to do that? It seems a situation of inbuilt, inherent conflict. It is not a question of determining——

A balance of interests.

If that is the case that is what we should be saying, that the examiner shall reach a balance of interests as between them, not say that he should determine that something is in the interests of the creditors, as a whole, given that that could lead to somebody claiming, in my understanding of the words "as a whole", that if there is a significant category of creditors against whose interest this proposal operates, they could say that the conditions had not been met in the sense that the creditors as a whole, and they were part of it, were not the ones who would benefit.

I wish to clarify that point. To take another example, you can have one secured creditor and you can have a number of different types of creditors who are following on down the line. The question is not whether everyone of those is going to be satisfied or whether it would be in their interest; you look at the general situation. There is no such thing as a 50 per cent rule, a 51 per cent rule or a 100 per cent rule. As the chairman has said you balance the interests. The reason why that is not specified is that the terminology, the creditors as a whole or the members as a whole is a formula which has evolved. It appears in the legislation. I cannot quote chapter and verse now, but it comes from a long line of court judgments. When the courts are considering different class rights on the winding up of a company, the terminology that is being used in innumerable court judgments is: are the creditors, as a whole, satisfied with this? Are the interests of the members as a whole or the particular class of members, as a whole, met? That is the terminology used by the courts themselves and that is what it means. It does not mean 50, or 51 per cent or 100 per cent. It means that you look at the general situation and you see if the interests are properly balanced. I am sorry I am not more specific but that is the way the courts have decided in practice. That is what it has come from. If Deputy Bruton studies the situation he will find that the terminology; "the members as a whole" or "the class of members as a whole" or "the creditors as a whole" comes from actual court judgments over the years.

This is slightly different. I am not speaking from the sort of experience that Deputy O'Dea is speaking from. It seems to me that we are talking about an entirely new type of situation here, where an examiner is going to come in and not now make a decision on the balance of advantage. He must satisfy himself that it would be more advantageous to the creditors as a whole — and that will include, I take it, employees, preferential and non preferential creditors — that the company would be reconstructed on the basis of a compromise and a winding up. I think it is going to be very difficult for him to satisfy that. He is making a value judgment here. I am not sure where the term "as a whole" is being used elsewhere in the legislation and previous legislation. It may have been in issues that are a lot less value-laden and more mathematical.

If you read that section again you see an attempt to continue the whole or any part of the undertaking of the company would be likely to be more advantageous to the members as a whole and the creditors as a whole in the winding up of the company and so forth. The creditors and members will decide the plan at the end of the day. All we are doing here is to ask the examiner to express an opinion and go on with the business of trying to agree a plan. From reading legislation, I agree with Deputy O'Dea that "as a whole" is used quite a lot and I would have no real worries about it at all. Maybe the worries of Deputy Bruton are unfounded. They are very well argued.

I would like the Minister to have a look at that wording. He makes a very strong point when he says that the creditors, of course, must accept this in the end. It is important to point out that that will be a majority, 51 to 49. It might well be that the examiner, given that he is required to look at the interests of creditors as a whole here, might decide that the 49 per cent should be protected from that eventuality and that he should not proceed. It is a bare majority that would lead to an oppression of a minority.

Just one point on the section before we leave it. The whole section envisages a situation whereby the examiner decides a company can be saved and that a scheme of arrangement will facilitate that. I take Deputy Bruton's point that any compromise or scheme of arrangement whereby debts are reduced will facilitate the saving of a company. Could you have a situation whereby, because of management problems or something like that, a company can be saved or turned around without, in fact, any compromise or scheme of arrangement as defined and as we understand here? There seems to be no such provision. You are locked into a situation that if a company is to be saved there is inevitably going to be a compromise or a scheme of arrangement, and the whole machinery for putting that in place is set up.

Would it be an idea then to put in front of (a), (b) and (c) "(1) where in the opinion of the examiner —" (a) the company is solvent, or" (b), (c) and (d).

We have to remind ourselves about the role of an examiner as such. It is a new concept in this Bill, in a sense, and it is a particular new role that is being taken on, which would provide an opportunity, basically, to save the company. That is the whole basis of this argument. Deputy O'Dea and Deputy Bruton have mentioned the wording again. We are satisfied that the wording is sound but, again, we are prepared, in the light of strong opinions, to have that checked out with our legal officials to make sure it is absolutely safe.

I think it is important to point out as well that, if the examiner just goes in to examine the state of the company and produces a report, without having any powers vested in him, that means that the shareholders, the members and the creditors retain their rights as the law stands and therefore, they should have the final say in the report anyway, rather than saying, as Deputy Bruton is saying, that where the company is solvent we will disregard the scheme of arrangement we set up here under statute. That would be prejudicial to the rights which continue to subsist in the shareholders and creditors and members, by reason of the fact that the examiner has no power vested in him at that stage. He may have to go back to the court under the previous sections we are talking about to get power vested in him. That would be something like Deputy Barrett was talking about in connection with the administrator in the PMPA. But if he is simply an examiner per se, as the concept is outlined in the Bill, it is necessary that whatever report he has maintains the status of a report, which is subject to the consent of the affected parties. That is logical.

Yes. He need not necessarily recommend the scheme of arrangement or compromise. He might not consider that to be necessary.

If the real problem is one of management at the end of the day it is not a question of rearranging a situation whereby creditors get X or Y amount but of changing the personnel.

The point is that the examiner concept allows members to go in there and start a process wherby management might be changed if that is the core problem. Nowadays they do not have that but must wait until the concern is gone.

I wish to clarify the matter slightly further. Arising from amendments tabled by Deputies Bruton and Barrett, it is clear that a company could apply to the court when it is solvent but unlikely to remain so. However, if following the appointment of the examiner it emerges that the company is, indeed, able to meet all its liabilities, the existing section 176 does not appear to enable the court to confirm the examiner's proposals. This is something I consider has to be rectified and I propose to come forward with an appropriate amendment on Report Stage.

You will be glad to hear your point will be met on Report Stage.

Question —"That section 170 stand part of the Bill"— put and agreed to.