Irish Company Directors will need to be aware of the recent changes to Directors’ Duties within the Companies Act 2014, that arose following the commencement of the EU (Preventative Restructuring) Regulations (“The Regulations”) on 17th July 2022.
The Irish Government recently published an informative note breaking down the key provisions of the recently transposed Directive (EU) 2019/1023 (the PRD) as regards corporate insolvency through the EU (Preventive Restructuring) Regulations 2022. It has not been left it up to the Member States to interpret the PRD themselves, the transposition has instead been provided by the Preventive Restructuring Regulations.
It should be noted that Ireland’s examinership framework is generally regarded internationally as an example of best practice in preventive restructuring. The existing examinership framework already complies with numerous aspects of the EU requirements and Ireland seeks to integrate any new requirements into Irish Law with minimal disruption. The Regulations amend Parts 5,10 and 11 of the Companies Act and insert a new Part 5A to transpose the requirements of the Directive not already included in Irish examinership law.
Background
The purpose of the Regulations is to harmonise preventative restructuring processes across the EU, to ensure companies in financial difficulty have access to a national support framework and to enhance the overall efficiency of the market. The overall aim is to reduce barriers to preventative restructuring, to introduce a formal system of early intervention and to try to minimise job losses where possible for organisations in examinership.
What is changing that impacts Irish Company Directors?
Early Warning System (“EWS”)
Firstly, the introduction of the EWS obligates a Company Director to alert companies of a situation, so that they can take the necessary steps to prevent potential insolvencies. The EWS, set out by the Corporate Enforcement Authority (details to be made available on their website) sets out valuable information and corrective steps that viable businesses need to take in order to respond and potentially recover. The overall aim is to support such companies to potentially prevent insolvency and to maintain employment or minimise job losses.
Director’s Duties to Creditors
Prior to the introduction of the Regulations, a directors’ duty to creditors in the period approaching insolvency, more commonly known as ‘the twilight zone’ was a common law duty only. The Regulations introduces this duty to the Companies Act 2014, thereby enforcing this duty upon Directors. Regulations 5 and 6 include this duty to creditors in the list of fiduciary duties owed to the company by the directors, thereby allowing for a director in breach of this obligation to face liability.
Enlisting Support
If your organisation is facing potential examinership or approaching insolvency, it is prudent to enlist the support of an expert to help you navigate key decisions, appraise your options and provide expert advice on all aspects of your regulatory obligations. Ormsby & Rhodes has vast experience in all aspects of insolvency and is one of the longest established accountancy practices in Ireland.
If you would like to find out more about how we support company directors to navigate potential or imminent insolvency, reach out to our contact details below.
