Commercial/Corporate

Effect Given to European Union (Preventitive Restructuring) Regulations 2022

This Summer saw effect given to the European Union (Preventitive Restructuring) Regulations 2022 by the Minister for Enterprise, Trade and Employment with the effect of bringing about some changes in the Irish examinership process.

Under this regulation, designed to harmonise the examinership process across the EU, a number of amendments are made to the pre-existing Directive (EU) 2017/1132. As Irish law in this area already substantially aligns with the requirements of the Directive, the Government has opted to integrate only those requirements which were not already provided for under Part 10 of the Companies Act 2014.

Perhaps the most significant change is the position of ‘out of pocket’ creditors in a liquidation in the courts consideration of the scheme of arrangement. Under the amendment to section 534, before the court can sanction a scheme of arrangement it must be satisfied that:-

1. A majority of the voting classes of ‘impaired’ creditors have accepted the scheme, subject to the provision that at least one of those classes is a class of secured creditors.
2. Where (i) fails, at least one voting class of ‘in pocket’ creditors in the event of liquidation has voted in favour of the scheme.

This now means that an examiner may no longer present a scheme for consideration solely on the basis of a vote of ‘out of pocket’ creditors who would be unlikely to receive payment in the event of a liquidation. The extent to which this may hinder a scheme reaching the court for consideration may defeat the flexible purpose of the examinership process.

Another notable amendment is the requirement that every member or creditor whose interests may be impaired by the scheme of amendment should be invited to attend the relevant meeting, and, any member of creditor who did not receive notice will not be bound by the scheme. This is a broad extension of section 534 and may lead to an increased burden on the examiner. Creditors who will not be impaired are not required to be given notice and will not have a right to vote on the acceptance of the scheme.

While these amendments appear to create an air of uncertainty in a previously well-defined area of law, over the coming months we will likely see the courts interpret and clarify the effect of these new provisions in the Irish examinership process.

Foreign Direct Investment in Ireland – Screening of Third Country Transactions Bill 2022

Ireland has recently published its draft FDI legislation in the form of the Screening of Third Country Transactions Bill 2022 which expected to come into force by the end of the year. This Bill obliges parties to such transactions to notify the Minister for Enterprise, Trade and Employment in order to obtain prior approval. It has been confirmed that the UK will constitute a Third Country in this context which is significant given the high level of investment transactions by UK investors in Ireland.

This Bill outlines strict obligations, with a mandatory notification procedure. There are significant sanctions for a failure to comply, with fines of up to €4m and a term of imprisonment for up to five years. The purpose of this legislation is to enable the Minister to decide whether a transaction may pose a risk to Irish security or public order, as well as emphasizing the need for increased information sharing and harmonious transactions within Member States.

A number of transactions are caught up by this legislation, including a transaction, agreement, acquisition or other economic activity relating to :-  a change of control of an asset in Ireland or the acquisition of an undertaking in Ireland.

The Minister must be notified where:-

1. A Third Country undertaking is a party, and
2. The transaction value is at least €2m, and
3. The transaction impacts critical infrastructure, critical technologies and dual use items, supply of critical inputs, access to sensitive information, and the freedom and pluralism of media, and
4. The transaction relates, either directly or indirectly, to an asset or undertaking in Ireland, or
5. The transaction involves the acquisition of shares or voting rights in an undertaking in Ireland, the percentage of shares or voting rights changes from 25% or less to more than 25%, or, from 50% or less to more than 50%.

While some questions may remain about the precise application of this Bill, it is clear that this will have a significant impact on a significant number of transactions which will fall within its jurisdiction.