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24 April 2020
Although it is a relatively unknown procedure, examinership may hold the key to the survival of businesses dealing with the financial consequences of the COVID-19 pandemic.
Examinership is a court restructuring procedure suitable for companies which are facing immediate financial distress but have reasonable prospects of survival. The procedure affords the distressed company a short-term moratorium on claims by creditors, so that during the period of examinership no claims by creditors can be advanced against the company. In parallel, a restructuring plan is prepared for the company and submitted to creditors and the court for approval.
Examinership was introduced in Cyprus in 2015, two years after the 2013 banking crisis which significantly affected a wide range of businesses in the country. By the time the examinership procedure became available, few businesses saw value in committing to the procedure, whereas many businesses were deemed not to meet the test of having reasonable prospects of survival. As a result, there was limited take-up of the examinership procedure at the time.
Given the unprecedented challenges faced by businesses during the COVID-19 pandemic, examinership has now become relevant as a mechanism for safeguarding their survival. Businesses today are facing short-term liquidity problems as a result of the direct or indirect suspension of their operations caused by the lockdown. Thereafter, the business will need to deal with declining revenues that are expected to result from the global financial slowdown caused by the pandemic.
Examinership can protect a business from any claims advanced against it in the short term and offer assistance in the form of an insolvency practitioner, who can devise a restructuring plan to safeguard the business's long-term survival.
The process can be summarised as follows:
The examinership procedure appears to offer the much-needed short-term protection that businesses will need to survive COVID-19-related disruptions; however, it also allows for the implementation of a long-term restructuring plan that will safeguard the company's lasting survival.
For further information on this topic please contact Andreas Erotocritou, Alexis Erotocritou or Antreas Koualis at AG Erotocritou LLC by telephone (+357 25 370 101) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The AG Erotocritou LLC website can be accessed at www.erotocritou.com.
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