When a business fails, for whatever reason, the liquidation of the company should not be the only option considered. There is another option to be considered called examinership.
Businesses fail. It is a simple economic fact of trading.
When a business fails, for whatever reason, the liquidation of the company should not be the only option considered. There is another option to be considered called examinership.
What is the difference between liquidation and examinership?
Liquidation
Liquidation is the process of winding up (closing down) a company so that it no longer exists. In this process the company’s assets will be distributed to pay its debts.
Liquidation is available to a company regardless of whether there are sufficient assets to discharge debts and can be voluntarily or forced.
Examinership
Examinership is an alternative to liquidation. It is not always an option and there are tests a company has to meet to be successful in an examinership. We discuss these further in our Article on examinership but in short, they must show that they have a reasonable prospect of survival once they undergo this restructuring process.
in short, the main difference between liquidation and examinership is the end result. Liquidation is final in that the company will no longer be in existence.
Examinership, on the other hand, aims to restructure the company which should then emerge from the process as a leaner entity able to trade in a more efficient manner.
Is an examinership a better option than liquidation?
This question is one that turns on the facts of each individual business considering their options. Whilst examinership may suit some companies, it does not suit all and this comparison should be carried out for you with your advisors prior to entering either process.
Early advice and guidance is critical so that a company fully understands both options, the costs involved and indeed the likely outcome in both scenarios so that they can make an informed decision based on expert legal and accounting advice.
As a general rule, typically the result of an examinership should be that the restructuring leaves all parties i.e. shareholders, creditors etc in a better position than if the company went into liquidation.
If a company finds itself successfully exiting the process of examinership, the company will obviously also be able to then continue to trade and with that jobs will be saved.
What if a receiver has been threatened against the company?
If a receiver is threatened or indeed appointed against a company, examinership is still an available option. Immediate action is however required as there is a period of only 3 days to overturn the appointment of a receiver by applying for examinership.
Should you wish to discuss the above, please do not hesitate to contact us for further information.
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