The European Union (Preventive Restructuring) Regulations 2022 have amended the Companies Act 2014 so as to require for the first time in statute that directors of companies unable, or likely to be unable, to pay their debts, must have regard to the interests of creditors.

On Friday, 29 July the Minister for Enterprise, Trade and Employment signed into law the European Union (Preventative Restructuring) Regulations 2022 (the "Regulations").

Reports last week of the significant increase in corporate insolvencies and voluntary liquidations in England and Wales for Q2 demonstrate the combined impact of government COVID-19 support being withdrawn, soaring energy and fuel costs, and weakening demand – and are being reflected in the nature of the instructions coming into our global jurisdictions from distressed companies across the globe.

Introduction

Section 819 of the Companies Act 2014 operates to restrict directors of insolvent companies from being appointed or acting as a director or secretary of a company and from being concerned in or taking part in the formation or promotion of a company. Any director who falls foul of s.819 is subject to a mandatory period of restriction of 5 years. The primary purpose of s. 819 is to protect the public from persons who, by their conduct, have proven themselves unfit to hold the office and discharge the duties of a director.

Introduction

The European Union (Preventive Restructuring) Regulations 2022 were signed on 27 July 2022 to give effect to an EU directive (Directive (EU) 2019/1023). The Directive aims to ensure that member states have in place effective frameworks for early warning and prevention of corporate insolvency.

On Friday, 29 July the Minister for Enterprise, Trade and Employment signed into law the European Union (Preventive Restructuring) Regulations 2022 (the Regulations).

I spoke on This Week on RTE Radio 1 about the same topic in the Summer of 2021. I took the view then that the pandemic-induced “zombie economy” would likely result in mass business failures when it finally ended. I did not know at the time that Government subsidies, including the Employment Wage Subsidy Scheme (EWSS) would continue for another twelve months and have only just come to an end.

We recently discussed the establishment of the Corporate Enforcement Authority (CEA) with effect from 7 July 2022, and the commencement of the Companies (Corporate Enforcement Authority) Act 2021 (CEA Act). With the commencement of the CEA Act, some insolvency-related amendments to the Companies Act 2014 (CA 2014) are now in force.

The High Court recently rescinded an order adjudicating a debtor bankrupt in Ireland because the debtor failed to disclose material facts to the Court in his application for bankruptcy. In doing so, the Court established a duty of full disclosure that debtors must comply with when seeking to be adjudicated bankrupt in Ireland.

This decision will be welcomed by creditors where there is a concern that a debtor may seek to relocate from other EU member states to Ireland to avail of Ireland’s comparatively benign bankruptcy regime.

Background