Today it was reported that Irish footwear chain Carl Scarpa has gone into examinership. But what does that mean?

Examinership

Examinership is a process in Irish law in which an examiner restructures a company with the permission of the High Court in order to settle unpaid debt.

The process usually results in creditor balances being reduced, while intangible assets of the company are protected, investment is obtained and in the short term at least, directors retain control.

If you a hear that a company has gone into examinership, it's usually because it has entered financial difficulty. In the case of Carl Scarpa, it's because the company can't afford to pay debts of around €200,000 in tax arrears to the Revenue. 

When this happens the company (but also the bank or other creditors) can apply for examinership, but only after showing the company has a reasonable chance of survival and can prove it can still attract investment among passing a range of other tests. 

But why would a company choose examinership over receivership? Perhaps the biggest advantage is that it gives the company breathing space. High Court protection means that no goods may be seized and the company can't be shut down.

Receivership does not provide such protection. 

Receivership

The most common form of receivership is where a bank seeks to have a receiver appointed to a company in order to recover unpaid loans.

The receiver, usually an accountant, takes administrative control of the company with the goal of recovering the money owed in line with the original loan agreement made between the company and the bank.

This sounds similar to examinership, but receivership is in fact a far more detrimental process in that the actions of the receiver usually force the company into liquidation, the process in which a company ceases trading and shuts down.

Even where a company appears to have recovered, as in the case of HMV Ireland last month, the appointment of new management does not qualify as a successful recovery from receivership.

Graph and information on examinership used with permission from Examinership.ie and Hughes Blake Chartered Accountants.