The Corporate Enforcement Authority recently published its guidance note on EU Directive 2019/1023 known as the "Preventive Restructuring Directive", which you will find here (Information Note).

The Preventive Restructuring Directive was transposed into Irish law in July 2022 with the introduction of the European Union (Preventive Restructuring) Regulations 2022 (Regulations) which are concerned with companies that are in or facing financial difficulties. The Information Note will be welcome assistance to company directors in understanding the Regulations and their impact on director duties and responsibilities, in particular when navigating companies through troubling times. 

The Regulations have, among other changes, introduced into the Companies Act a new statutory duty on directors who "believe" or who have "reasonable cause to believe" that a company is or is likely to be unable to pay its debts (under either an as they fall due test or balance sheet insolvency test).

Under Irish law, such directors are required to "have regard to the interests of creditors", "the need to take steps to avoid insolvency" and "the need to avoid deliberate or grossly negligent conduct that threatens the viability of the business of the company". This duty is expressed to be owed by directors to the company "and the company alone" and is enforceable in the same way as any other fiduciary owed to a company by its directors (e.g. by derivative action).

The Regulations have additionally introduced into Irish law an "early warning tool" system that directors may, but are not mandated to, consider when carrying out company affairs. An early warning tool is a mechanism designed to alert directors of the circumstances that could give rise to a company's actual or impending insolvency, thereby facilitating earlier intervention for potential restructuring options (which is key) and encouraging directors to take proactive steps to try to avoid insolvency. 

The Information Note contains an extremely helpful and detailed (non-exhaustive) list of key indicators of potential financial difficulties across a significant number of topics at Appendix 1. These range from issues with revenue and sales to unexpected supply chain issues, as well as other financing and funding concerns. It also highlights key steps that directors can take to ensure that they are continuously aware of a company's actual financial situation, such as the maintenance of proper management accounts and regular budgeting and cashflow forecasting. 

These will undoubtedly assist directors in confronting a company's true position and focus on the many restructuring options open to it (e.g. examinership, the Small Companies Administrative Rescue Process and schemes of arrangement (either informal or under Part 9 of the Companies Act)) to avoid the consequences of an insolvency.