Liabilities of Third Parties for Debt of a Company in Examination

Part 10 – Examinerships

This Chapter of the Act looks bigger than it is. It spans seven sections, but the reality is that they all have their origin in a single section of the old law, Section 25A of the C(A)A 1990.

The reason for the increased number of sections is to aid clarity, hence, for example, definitions of “creditor”, “debt”, “liability,” “third person” for the purposes of this Chapter – Section 546.

The general rule is that the liability of third parties is not affected by the fact that the debt is the subject of a compromise or a scheme of arrangement. Put simply, guarantors do not necessarily benefit from write-downs in an examinership.

  • This rule does not apply if the third party is a company to which an examiner has been appointed.
  • The rule will not apply if the third person and the creditor agree otherwise.

If a creditor proposes to enforce a guarantee, it must offer the voting rights it has – the right to vote on the scheme of arrangement – to the guarantor. (Section 550). This re-enacts Section 25A(1)(c) of the C(A)A 1990.

The statutory subrogation in favour of third persons is re-enacted at Section 550.

Practitioners should note the two “saver” provisions at Section 551.