Many businesses are facing a number of headwinds coming into 2024, including the effects of higher interest rates, inflation and for some, the requirement to address warehoused liabilities due to the Revenue Commissioners.

According to John Fitzgerald, Partner and Head of Corporate Recovery & Insolvency in ByrneWallace LLP, there are a number of very effective restructuring tools which may be available to those who are struggling.

These include the Small Companies Administrative Rescue Process (SCARP), examinership, liquidation, schemes of arrangement under Part 9 of the Companies Act 2014, and informal arrangements with creditors and shareholders.

All of these processes offer either the potential to restore a business to a sound financial footing, or if appropriate, to cease trading and bring about an orderly voluntary winding up of a business, with a view to reducing personal risk for directors and giving business owners an opportunity to start afresh.

However, there are two key points to remember when considering any of these options. The first is that it is essential to seek help as early as possible. It takes time to gather the appropriate information and documents required for independent professionals to give an informed view as to which restructuring arrangement might suit a particular business. It can also take time to plan a process and to seek new investment where appropriate. This is not an exercise any business owner or director wants to do under extreme time pressure. The window to positively restructure can often close very quickly, particularly given the onus on company directors to have regard to interests of creditors when a company is insolvent.

The second consideration relates to the recent change in the law relating to directors’ duties that places a renewed focus on the potential for directors to be held personally liable for the liabilities of insolvent companies.

Section 224A of the Companies Act 2014 which incorporated the EU (Preventive Restructuring) Regulations 2022 into domestic legislation, has imposed a statutory obligation on a director of a company who believes a company may be unable to pay its debts, to have regard to:

(a) The interests of creditors,

(b) The need to take steps to avoid insolvency, and

(c) The need to avoid deliberate or grossly negligent conduct that threatens the viability of the business of the company.

The obligation to comply with directors' statutory duties and obligations applies to all categories of directors without exception, including executive and non-executive directors and shadow and de-facto directors, as well as formally appointed directors.   

The mere act of taking professional advice is a critical first step in protecting the personal position of directors of companies trading in the zone of insolvency.

For further information on corporate rescue, contact John Fitzgerald, Partner and Head of Corporate Recovery & Insolvency, ByrneWallace LLP

Email: jfitzgerald@byrnewallace.com

Phone: +353 1 691 5617