In the second part of our coverage of the Companies (Miscellaneous Provisions) (Covid-19) Act 2020 (the Act), we consider amendments made to certain insolvency provisions of the Companies Act 2014 (the 2014 Act). All of these measures apply for an "interim period", expiring on 31 December 2020 (unless extended by Government).
The Act gives companies some flexibility with regards to dividends that have been declared by the directors, but not yet approved at general meeting. The directors may withdraw or amend such a resolution if, after convening the meeting, they “form the opinion that, due to the actual or perceived consequences of Covid-19 on the affairs of the company, the dividend ought to be cancelled or reduced to a particular amount”.
This provision is designed to allow a company to adapt its dividend resolution to its changing financial circumstances in light of the pandemic, without affecting the valid convening of the meeting. However, the power is very limited in application, as it may only be exercised subject to agreement in writing by all the members of the company and where notice of the directors' opinion is given no later than three days prior to the holding of the general meeting.
Winding up: debt threshold
A company may be wound up by the court, if it is unable to pay its debts as they fall due. The circumstances where a company is deemed to be unable to pay its debts are set out in the 2014 Act. These include where a statutory demand for payment of €10,000 (or €20,000, where two or more creditors are acting together) goes unsatisfied.
COVID-19 has had an impact on the liquidity of many companies and exposed them to greater risk of being wound up, even where the debts of the company may not be very substantial. The Act has raised the debt threshold for the commencement of a winding up by the court to €50,000 for both individual debt and aggregate debts, which may provide some relief to companies that are capable of recovery.
Examiners may face challenges in formulating a restructuring plan and assessing the future viability of a company given the current uncertainties in the market. There may also be a more limited pool of investors available and slower creditor buy-in in the process. Additional time may be an important aid to an examiner seeking new investment.
In an effort to ameliorate some of the pressure on examiners and companies, the Act affords additional time to formulate a rescue plan in certain circumstances. Where there are "exceptional circumstances", an examiner may apply to the Court to extend the period of protection from creditors up to 150 days maximum.
This 50 day extension may only be sought where the examiner has previously obtained an order extending the standard 70 day period by a further 30 days. The 'exceptional circumstances' envisaged by the Act include, but are not limited to, "the nature and potential or actual impact of Covid-19 on the company".
As with general meetings, the Act permits all meetings of creditors and contributories during the interim period to be conducted wholly or partly by electronic means. The Act applies to a wide range of creditors' meetings, as covered in various sections of the 2014 Act, and includes meetings of particular shareholder classes, creditors' meetings for mergers and divisions and meetings convened by the liquidator where the company is unable to pay its debts.
The rules around convening and conduct of creditors' meetings involving electronic communications technology are similar to those introduced for general meetings (which we covered in detail in Part 1 of our commentary). There are, however, a few key differences:
The additional detail required to be provided in the meeting notice (such as information on the electronic platform to be used) does not have to be included in the public advertisements required to be published in daily newspapers and in Iris Oifigiúil.
The "relevant person" convening the meeting (e.g. the liquidator) must ensure, "as far as practicable", that the attendee can (i) hear what is being said by the convenor and any person introduced by the convenor and (ii) "speak and submit questions and comments during the meeting to the relevant person".
The corresponding provision for general meetings allows a company to limit the extent to which attendees may participate in line with the provisions of its constitution – an attendee may speak and submit questions and comments "to the extent that the attendee is entitled to do so under the constitution of the company".
In choosing to hold a creditors' meeting wholly or partly by electronic means, the person convening the meeting must be of the opinion that conducting the meeting by such technology is "most convenient" for the majority of the creditors, contributories or members.
4. Further reforms
In the General Scheme published initially, it was proposed to insert a new section into the 2014 Act to codify a director’s duty to creditors as the company approaches insolvency. The duty already exists at common law and its placement on a statutory footing was recommended by the Company Law Review Group (CLRG) in its Report on the Protection of Employees and Unsecured Creditors.
This provision wasn't included in the resulting Bill – it was thought best to restrict the Act to temporary measures in response to COVID-19. However, the Government has indicated that it intends to carry out a review of certain aspects of insolvency law, with the assistance of the CLRG, so we may see further reforms in future.
For more information please contact Julie Murray, Knowledge Lawyer, Corporate or a member of the A&L Goodbody Knowledge team.