The Disadvantages of Examinership

In the normal course a secured creditor will be able to rely on their security to recover any money owed by the company. Where an examiner is appointed however, their normally unassailable security can in certain circumstances be compromised by the Court’s approval of a scheme of arrangement.

Should the scheme of arrangement not be approved and the examinership not succeed, the costs and expenses of the examiner may also rank in priority to the security held by a charge holder and may have to be discharged in priority to the charge holder on the liquidation or receivership of the company.

Disadvantages for unsecured creditors:

Where an examiner is appointed to a company and fails to secure investment in the company or the sale of assets to enable it to survive, the dividend to an unsecured creditor in the liquidation will also be reduced as the costs and expenses of the examinership will be paid out of the assets of the company.