We have set out below the answers to questions that we are frequently asked in connection with insolvent companies. If you have a question that we have not answered then please contact Declan de Lacy at firstname.lastname@example.org or by telephone at 01 531 1111.
- What options are available for restructuring a company’s debts?
The options available for restructuring a company’s debts in Ireland include examinership in the High Court, formal schemes of arrangement, and informal schemes of arrangement. With examinership, the company asks the Court to appoint an Examiner. The Examiner then proposes a scheme of arrangement to the company’s creditors. If at least one class of the creditors approves the scheme then the Court can bind all the creditors to the scheme. If either the creditors or the court do not approve the scheme then the Company goes into liquidation. The cost of the examinership process is at least €50,000 and consequently it is only availed of by large companies. Formal schemes of arrangement involve the company proposing a scheme of arrangement to its creditors. The company calls meetings of each class of creditors. If the scheme is approved by 75% in number and value of those in attendance at each meeting, then the company can ask the Court to make it binding on all of the creditors. The company need not necessarily go into liquidation if the scheme is not approved. This option is much less costly than examinership because there is only one court appearance involved. Informal schemes of arrangement do not involve the court and involve the company making individual arrangements with each of their creditors. There is no basis on which dissenting creditors can be bound into an informal scheme.
- What are the different types of liquidation?
Liquidation is the process by which a company is wound-up. If a company is able to pay its creditors then it may be wound-up by members voluntary liquidation under the control of its shareholders. If a company is unable to pay its creditors then it must be wound-up either by creditors voluntary liquidation or by court liquidation. A creditors voluntary liquidation is one which is commenced by the company’s directors and shareholders and is supervised by the creditors. A court liquidation is one which is commenced by an order of the High Court, and which is supervised by the Court and the company’s creditors.
- How long does a liquidation take?
There is no fixed time within which a liquidation must be completed, and in complex cases it can take several years. As soon as a liquidator has disposed of all of a company’s assets, distributed the proceeds amongst the creditors and shareholders, and performed all of his other statutory duties he or she should bring the winding-up to a conclusion.
- When are directors obliged to wind-up a company?
A company’s directors are obliged to wind-up a company if it is unable to pay its creditors and has no reasonable prospect of becoming able to pay its creditors in the short term.
- What is the procedure to commence a members voluntary liquidation?
The company’s directors must make a declaration of solvency, in which they state the amount of the company’s assets and the company’s liabilities. A person qualified for appointment as the company’s auditor must prepare a report in which they express the opinion that the declaration made by the directors is not unreasonable. The declaration and report must be filed in the Companies Registration Office. The company’s shareholders must then pass a resolution to wind-up the company and appoint a liquidator.
- What is the procedure to commence a creditors voluntary liquidation?
A creditors voluntary liquidation is commenced when a company’s shareholders pass a resolution to wind-up and appoint a liquidator. The directors must summon a meeting of the company’s creditors for the same day or the day after the meeting at which the shareholders pass the winding-up resolution. The creditors must be given 10 days notice of the meeting by post and by advertising in two national newspapers. One of the directors must preside at the creditors meeting. A statement of the company’s affairs must be laid before the creditors meeting.
- What happens at the creditors meeting in a creditors voluntary liquidation?
All of a company’s creditors are entitled to attend or be represented at a creditors meeting. The business to be dealt with at the meeting is as set out below.
- The director chairing the meeting circulates a statement of affairs
- The chairman reads out a statement explaining the company’s circumstances and how it came to be insolvent
- The chairman invites those present to ask questions about the company’s circumstances and the statement of affairs
- The meeting can appoint a liquidator to act in place of the liquidator appointed by the company’s members
- The meeting can appoint up to five members of a committee of inspection.
The director chairing the meeting will usually be assisted by a solicitor who is experienced in corporate insolvency.
- Who can be appointed as the liquidator of a company?
The Companies Acts regulate who is eligible to be appointed as a liquidator. To be eligible a person must be a member of an accountancy body or a solicitor and have a practising certificate from that body, and also have appropriate professional indemnity insurance.
- How are liquidators supervised?
The liquidator in a members voluntary liquidation is supervised by the company’s shareholders. The liquidator in a creditors voluntary liquidation or a court liquidation is supervised by the company’s creditors or by the members of a committee of inspection. In every case if a shareholder or creditor of a company is aggrieved by the liquidator’s conduct then they may apply to the High Court for directions.
A committee of inspection may be appointed in a creditors voluntary liquidation or a court liquidation. The company’s creditors may appoint up to five members and the company’s shareholders may appoint up to three members of the committee. The committee’s role includes receiving reports and other information from the liquidator, and approving the basis on which the liquidator’s fees are to be approved, and the payment of those fees.
A liquidator is generally paid from the proceeds of the assets of the company to which they are appointed. It is possible for a creditor or a shareholder to provide funds to discharge the liquidator’s fees. In certain circumstances the liquidator must receive the High Court’s approval to receive payment of their fees from any source other than the company’s assets.
The basis of calculating a liquidator’s fees is fixed by the company’s shareholders in a members voluntary liquidation, and by the creditors or committee of inspection in a creditors voluntary liquidation or court liquidation. The liquidator’s remuneration is most frequently calculated by reference to the time spent on the winding-up, but it can also be a fixed sum, or calculated as a percentage of the proceeds of the company’s assets.
The Companies Acts prescribe the order of priority in which payments are made in a winding-up. Generally any expenses of the liquidation are paid first, then the liquidator’s fees, and then the company’s creditors. Any surplus after the creditors are paid in full is paid to the shareholders. Some creditors rank as preferential for payment of their debts and are paid in full before the other creditors.
The company’s acts prescribe which debts are repaid in priority to the others in a liquidation. THe first to be paid are any super-preferential debts, which include PRSI deducted from wages but not paid over to the Collector General. The next to be paid are the any preferential debts, which include certain taxes, local authority rates, and employee claims are paid. Then the unsecured creditors are paid.
A bank is entitled to be paid ahead of other creditors in a liquidation only if it has a charge over some or all of the company’s assets. If the bank has a fixed charge (eg. over land) then it is entitled to be paid out of the proceeds of the charged assets. If the bank has a floating charge (eg. over stock or debtors) it is entitled to be paid out of the proceeds of the charged assets after the preferential creditors have been paid in full.
In general neither the directors nor the shareholders of a limited company have to contribute towards paying its debts. However, if the company is incorporated with “unlimited liability” then the shareholders must contribute to paying the company’s debts. In certain circumstances where a company’s directors have not complied with their statutory obligations or have traded recklessly / fraudulently they may be ordered by the High Court to contribute towards the company’s debts.
When an insolvent company is wound-up there are generally no negative consequences for directors who have acted honestly and responsibly. The liquidator of an insolvent company must report to the Office of the Director of Corporate Enforcement (“ODCE”) on the company’s affairs and his opinion on whether the directors acted honestly and responsibly. If the ODCE is not satisfied that the directors acted honestly and responsibly then the ODCE can either agree to the directors giving restriction undertakings, or instruct the liquidator to apply to the High Court for an order that the directors be restricted. In more serious cases the liquidator may also apply to the High Court for an order that the directors be disqualified or ordered to contribute to the company’s debts. If the liquidator identifies serious criminal offences then he may be obliged to file a report with the Director of Public Prosections.
If a person is a “restricted director” then they may not for a period of five years be appointed as a director of a company or be involved in the management of a company unless it has a paid up share capital of at least €100,000. If a person is a “disqualified director” then they may not be appointed as a director of a company or be involved in the management of a company for ther term of their disqualification. The term of a disqualification can be any period of five years or more. A person can become either restricted or disqualified either by making a restriction / disqualification undertaking, or by order of the High Court.