Mason Hayes handles CIRCle examinership

Dublin firm Mason Hayes & Curran has advised the US investors on the first examinership of an Irish internet business. Corporate partner John Kehoe represented the undisclosed US venture capitalists bidding for online retail and banking venture Circle Network.
Circle’s longstanding adviser is Matheson Ormsby Prentice. However, when the preliminary order for the examinership was given at the beginning of the summer, the company received consent orders and lost the need for its own counsel. Administrator McStay Luby was advised by McCann FitzGerald.
Examinership is Ireland’s equivalent to Chapter 11 in US insolvency law. The legislation gives the company an interim period of protection from its creditors while the administrator puts a rescue plan in place. However, it differs from administration in the UK because the administrator does not take control of the company.
Chapter 11 and examinership facilitate the acquisition of a distressed company. Circle’s rescue package included an investment by the US bidder in return for an enhanced interest in the business. The scheme allowed the investor to acquire shares in Circle while reducing some of the creditor debt.
According to Kehoe, structuring an acquisition using insolvency laws is unusual in Ireland, although it is already popular in the US. “The examinership laws do throw up interesting opportunities for structuring distressed acquisitions,” he said. “In the US, a whole industry has been developed involving the use of corporate bankruptcy laws to structure acquisitions, and I predict a similar trend here.”
This deal was significant in its implications for other businesses with intangible assets.
There are a lot of dotcom companies, formed last year, that are running out of funds, and when these companies face difficulties, they do not always have sufficient assets to pay creditors. Kehoe said that the way to extract value from these companies is to keep them up and running and then to exploit the value of a brand or concept.
Options for an insolvent company traditionally in-clude putting it into liquidation or sending in a receiver. Kehoe said that an acquisition through examinership allowed a business that was a going concern to come out the other side.
He said the whole issue of the balance to be struck in Chapter 11-type laws between the interests of creditors and the dangers of premature liquidations was highly topical in the aftermath of Swissair.
He said: “The general drift across Europe is to expand the scope for US Chapter 11-style management-led reorganisations, and to restrict the rights of secured creditors to put a company into potentially premature liquidation. We think the Irish law reaches a good balance for today’s market, but clearly there’s an important interplay with the state aid rules. The competition authorities here are also likely to intervene where bankruptcy shelter is used to distort competition.”