As businesses face the prospect and reality of extended forced shuttering of their doors, reduced traffic given restrictions on movement and the eventual reduction in income which is likely to result, the need arises to examine all avenues for survival in these unprecedented times. Inevitably, many will consider cost-cutting exercises, reductions in wages and salaries, lay-offs and redundancies. However, even these strategies may not be sufficient, and it may become important to take a long and hard look at the prospects of the business. In doing so, it is important for businesses, whether operated by individuals as sole proprietors or partners or as companies, to give some consideration to whether the rescue provisions recently introduced under the Insolvency Act, 2014 may afford any opportunities to ensure survival.
The rescue mechanism under the Insolvency Act, 2014 is a measure that may only be commenced by or on behalf of the debtor (the person who owes), by way of a filing of a proposal. Importantly, the Insolvency Act does not require a debtor to wait until they are in fact unable to pay their debts. Someone who thinks that insolvency is likely within the next 12 months can also file a proposal.
Upon the filing of a proposal, a stay of action is automatically put in place which restricts anyone to whom the proposal is directed (generally, your unsecured creditors) from enforcing any remedy against you or your property, commencing or continuing any action, execution or proceedings for the recovery of the debt. The proposal also restricts the right of the creditor from terminating, amending or accelerating the contract by reason of the filing of the proposal or notice of intention to file the proposal. This restriction applies until the insolvency practitioner, the licensed trustee under the Insolvency Act, has been discharged (by the refusal or performance of the proposal) or you become bankrupt.
Note also that, by filing a notice of intention to file a proposal, you, if you are an insolvent person, can also gain valuable time and space from your creditors to enable you to put together your proposal. An immediate stay of action, similar to the above, arises upon the filing of a notice of intention to file a proposal. This stay remains in force until the filing of the proposal when the stay on the filing of the proposal will take over.
Please bear in mind, however, that where you decide to file a proposal or a notice of intention to file a proposal, if you do not comply with the specified timelines for sharing certain information or meeting with your creditors or the proposal fails this failure will automatically trigger bankruptcy proceedings. The failure might arise for a number of reasons, namely, because your creditors do not agree, the court does not approve or you are unable to perform in accordance with the proposal (and the default is not waived or remedied). It is therefore very important to remember that while the proposal mechanism affords you space and time in which your creditors will not be able to take action against you or your assets, this space and time must be used wisely, guided by licensed insolvency practitioners, to examine and report on your business and financial affairs and come up with proposals that are likely to be accepted by the required majority of your creditors, and are sufficiently feasible and practical so that they can be completed successfully.
It is not necessary that 100% of your creditors accept the proposal for them to be bound by it. A proposal accepted by the required majority of creditors and approved by the court is binding on all the creditors in respect of all unsecured claims and the secured claims of the secured creditors to whom the proposal was directed and who voted for its acceptance with the required majority. However, if you have secured creditors, it is important to get them on board early with the steps you plan to take since, generally, they may not be prevented from acting under the terms of their security agreement. The stay on the filing of a notice of intention to file a proposal generally also stays a secured creditor but the stay on the filing of a proposal will only stay a secured creditor to whom the proposal has been directed.
The proposal mechanism therefore affords you a valuable opportunity to work out a viable mechanism with your creditors to achieve survival. All hope is not lost. Opportunities for survival abound.