Winding Up a Company

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Company Insolvency Law Firm Dublin

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If you are running an insolvent company in Ireland you are putting your reputation and right to hold the position of Director of a company at serious risk. The test for insolvency in this jurisdiction is that ‘your company must be able to pay its debts as they fall due’. If the answer to this question having regard to your company is ‘NO’ or ‘I’m not sure’, then we would strongly suggest that you contact your accountant or legal adviser immediately.

If you continue to run your business when it is insolvent (whether you know it or not) and the company is wound up, then you could be putting yourself at serious risk in accordance with insolvency law in Ireland. In instances where an insolvent company is wound up the Directors of that company can be restricted or even disqualified from acting as Directors of any company in the future.

This is one of the situations where not just the company but the Directors individually, can be held personally liable for their actions. This could lead to you being unable to run or be involved in the management of another company and/or to you having to assume personal liability to pay or repay monies.

You should contact Tully Legal Business Solicitors if you feel your company is trading while insolvent and together we can examine the options open to you. Depending on your particular circumstances you may wish to have either an Examiner or a Liquidator appointed over your company.

Tully Legal Insolvency

Having an Examiner appointed over your business is a step in a process designed to save failing companies. If your company has a reasonable prospect of success, applying to Court to have an Examiner appointed may relieve some short term pressure and allow your company to trade its way out of its difficulties. If, however, your company is beyond the point of saving, a business decision should be made to liquidate the company.

If you have any concerns about the solvency of your company, contact us today.

So having taken advice you decide to cease trading and close your company. This is what we call winding up the company.

 

Winding up of a company

Conversion from a voluntary to a compulsory winding up

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Directors’ duties to the Liquidator
The directors and other officers of the company have statutory duties to assist the liquidator in the performance of his duties.

Liability of Liquidators
Liquidators are agents of the company and not generally, personally liable. But, they must act in good faith. They will be potentially personally liable if there is fraud or personal misconduct or negligence on their behalf.

Payment of the Liquidator
The expenses and fees of the liquidator are paid out of the realised assets. In voluntary liquidations, the creditors, or the committee of inspection, if appointed will fix it. In a Court liquidation, the court fixes the payment based on what is a ‘fair fee’. This will be determined by the number of staff and hours worked, etc. It is often the practice to appoint a creditor to review the charges and express a view to the court.

Director’s duties to Creditors
It is important to note that while a director’s duties are normally to the company, as a company moves to insolvency, the courts have held that the directors’ duties also move towards the creditors.

We will be happy to assist you with any aspect of a Company insolvency, whether you are a Director, shareholder or creditor.

 

Winding Up A Company In Ireland

The winding up or liquidation of a company brings to an end the trading life of a company. It occurs voluntarily or involuntarily.

Voluntary liquidation is undertaken when the shareholders decide that they would like to realise their investment and the company is solvent enabling them to receive payment.

An involuntary liquidation generally means the company is insolvent. “Involuntary” usually means that a creditor (or shareholder) has forced the hands of the shareholders/directors by a Court Order to wind up or the financial circumstances of the trading of the company compel it to cease activities and call in a liquidator.

There are four ways to wind a company up depending on the circumstances:

  1. Members’ voluntary liquidation– the company is solvent and the shareholders agree to it.
  2. Creditors’ voluntary liquidation– this phrase often confuses people. It simply means that the company is insolvent and the shareholders and creditors agree (they have no choice) to appoint a liquidator (they may have a choice here) because the company cannot continue to trade because of its liabilities. This is the most common form of liquidation.
  3. Compulsory or Court liquidation– The Company is generally insolvent and a petition has been made to the Courts to appoint an Official Liquidator (or a Liquidator is provisionally appointed).
  4. Conversion of a members’ voluntary liquidation into a creditor’s liquidation, this happens if it turns out that the company is, in fact, insolvent.

 

Members Voluntary Liquidation (Winding Up)

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What are the Procedures to liquidate a company that is Solvent?

The Companies Acts under which limited companies are run, simply states,

“if the company resolves by special resolution that the company be wound up voluntarily” or “the period, if any, fixed for the duration of the company by the Articles expires…” then, a company may be wound up – the first, requires a special resolution and the second, an ordinary resolution.

 

Declaration of Solvency – Section 256(2) of CA 1963

A declaration of solvency must be sworn by the directors or a majority of them that they have “…made a full enquiry into the affairs of the company…and have formed the opinion that the company will be able to pay its debts in full within such period not exceeding 12 months from the commencement of the winding up as may be specified in the declaration&rdquo.

This is legal speak for – all or most of the directors are of the opinion that the company can pay any money it owes, over the next 12 months.

A special procedure must be followed, the declaration of solvency:

  • Must be made not more than 28 days prior to the resolution
  • Delivered to the Company Records Office not later than 15 days after.
  • A Statement of Affairs setting out the assets and liabilities of the company at the latest practicable date, and not more than 3 months before the date of declaration
  • A report by an independent person to be attached
  • A statement from the independent person giving irrevocable consent to the issue of the declaration
  • The declaration is attached to the notice sent to the shareholders calling the meeting

Report of an Independent person – you are required to get the opinion from an independent person (a qualified auditor) as to whether the directors declaration of solvency and the Statement of Affairs are reasonable.

Importantly for you as a director, this will be a good defence in the event that the directors‘ declaration turns out to be wrong.

The courts have held that these requirements must be strictly complied with or the liquidation could be turned into a creditors’ liquidation.

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Emergency General Meeting (EGM) – When the declaration of solvency and the independent report have been made, the directors must hold a shareholders meeting, an EGM, within 28 days of the date of the declaration and pass a special resolution, It is only at this point that the liquidation commences.

If all the shareholders are in agreement, this can be done in writing, rather than having to actually hold the EGM.

Termination – if the liquidation continues for more than a year, the liquidator must summon a meeting of shareholders within 3 months of the end of the year and every year thereafter. An account of his acts and dealings are laid before the meeting and that account must be filed with the Company Records Office.

  • When everything is completed, another meeting is called (which must be advertised in the national newspapers 28 days before) and a final account is prepared.
  • Within a week, it must be filed with the Company Records Office and three months later the company is deemed to be dissolved (unless it deferred by a Court application).

 

Incorrect Declaration of Solvency

Warning: If the declaration of Solvency is incorrect and the company is in fact insolvent, then personal liability of the directors may arise, additionally the members’ liquidation is converted to a creditors’ liquidation.

If the debts are not paid within the 12 months, then there is a presumption that the directors did not have reasonable grounds to make the declaration. (under section 256(8) of CA 1963)

 

Creditors Voluntary Liquidation (Winding Up)

What to do if you decide your company is insolvent and you need to wind it up?

Under the Companies, a company may pass a resolution that “the company cannot by reason of its liabilities continue its business, and that it be wound up voluntarily”. The company is insolvent or very shortly, will be.

In that event the procedure is broadly as follows.

Statement of Affairs (not a Declaration)

Although this is called a creditors’ liquidation, it is not necessarily brought about by them.

The insolvency of the company will, or should, on becoming known to you, the directors, trigger you to immediately inform the shareholders and, most importantly to avoid personal liability, you should put the company into immediate liquidation.

The directors resolve to call a members meeting AND a creditors meeting. (This is usually on the same day, directly after each other)

The Directors must then prepare:

  1. A Statement of Affairs,
  2. A list of creditors and an estimate of their claims.

This will give you a good idea of the likely distribution and of how many cents in the euro that each creditor (or class of creditors’) will get at the end of the liquidation, if any. There are usually different classes of creditors, which usually means that different creditors get treated better than others. In plain English this means who get paid first.

Finally, the directors must appoint a director to preside at the creditors’ meeting. It is fair to say that this is usually not a pleasant experience as the creditors can be quite hostile if they are not going to get paid.

Members (Shareholders) Meeting

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  • The members meet to pass the ordinary resolution at the Emergency General Meeting. The resolution must be advertised within 14 days in Iris Oifigiuil (this is the official Irish State gazette and it is published twice a week).
  • They nominate a liquidator.
  • The liquidation will commence on passing the resolution even though the creditors have not met yet and agreed to the nomination or to the appointment of their own alternative liquidator.

Creditors Meeting

  • This must be advertised in two national newspapers giving 10 days’ notice of the meeting.
  • It must occur on the same day or the day after the members meeting.
  • The creditors can accept the appointment of the liquidator selected by the members or may disagree and appoint their own.
  • At the meeting, an explanation is given of the state of affairs of the company and questions are asked of the Director, by the creditors, on the prepared Statement that will have been circulated.

Committee of Inspection

In addition, the creditors can appoint a Committee of Inspection to oversee the liquidation process. It can be made up of up to 5 creditors and additionally the members can appoint 3 people.

The powers of the Committee are:

  • To fix the remuneration of the liquidator
  • To determine whether the liquidator should continue the business of the company
  • To determine whether the powers of the directors should continue

The Committee can be very helpful to the liquidator, especially if it is a specialised business.

The creditors’ liquidation commences on passing of the member’s resolution.

So (Accordingly, subject to the provisions of section 131 of CA 1990 requiring Court approval), it is possible for the liquidator to act before he has been accepted by the creditors.

For that reason, he has to give an account of his actions since his appointment – he is permitted, without Court approval, to dispose of perishable goods.

In practice, the creditors meeting, nearly always immediately follows the members meeting.

Note that a resolution to appoint the creditors nominee as liquidator must be passed by a majority in value of creditors (in other words based on the value of the debt owed to the creditor)

In reality, this makes it easier to remove the shareholders’ nominee as liquidator, if the creditors so desire. This is in contrast with any other resolutions, where a majority in number and value are required.

Termination of Creditors Liquidation

When all the assets have been sold and the liabilities discharged as far as possible, the liquidator then calls meetings of both the members and creditors. He presents an account before each of them of his dealings during the course of the liquidation.

He then reports to the Company Records Office and three months after that, the company is dissolved.

 

Converting a Voluntary to a Compulsory Winding Up

In order to covert a voluntary winding up into a compulsory winding up, someone, either a shareholder (s) or a creditor(s), must apply to the Courts to do so.

In order to apply to the Court for a compulsory winding up order, then your reason to do so must come under one of the grounds set out in section 213 of Companies Act, 1963, which are summarised as follows:

(a) The company has by special resolution resolved that the company be wound up by the court;

(b) The company has not delivered the statutory report to the Companies Record Office or has failed to hold the statutory meeting;

(c) The company does not commence its business within a year from its incorporation or suspends its business for a whole year;

(e) The company is unable to pay its debts;

(f) The court is of opinion that it is just and equitable that the company should be wound up;

(g) the court is satisfied that the company’s affairs are being conducted, or the powers of the directors are being exercised, in a manner oppressive to any member or in disregard of his interests as a member and that, despite the existence of an alternative remedy, winding up would be justified in the general circumstances of the case so,

However, the court may dismiss a petition to wind up under this section (g) if it is of opinion that proceedings under section 205 (this is where a minority shareholder claims they are being oppressed) would, in all the circumstances, be more appropriate.

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Reasons to apply to court to convert

The courts have held that it would agree to convert a voluntary liquidation into a compulsory liquidation in the following circumstances:

Where the shareholders have refused to swear a declaration of solvency and thus were frustrating the process.

Where a liquidator was not behaving properly, such as not investigating the actions of the directors, the creditors might not be happy with that and seek a conversion.

However, it should also be noted that the Courts have said that they would be reluctant to convert a liquidation unless there was a compelling reasons.

It should be remembered that what is happening in a Court liquidation is than an official liquidator is appointed by the Court and the liquidation is under the supervision of the court.

But be warned a court liquidation it is very expensive operation because of the need of make regular applications to the court for approvals and also the process of admission of each debt through a court process in the Examiners office.

 

Powers and Functions of a Voluntary Liquidator

All the powers of the directors usually cease unless permitted by the committee of inspection.

The primary duty of liquidators is to collect, realise or sell, and then distribute all the assets of the company to the creditors.

To call a meeting of creditors and the shareholders at the end of the first year of the liquidation and thereafter.

The powers of a voluntary liquidator arise from different sections of the Companies Acts. (s 23, which deals with the powers of a court liquidators, and s 276 )

These powers are allocated to the liquidator, depending on the circumstances. For example any given power may or may not require the consent of a committee of inspection, if one has been appointed.

Or

Creditors in a creditor’s liquidation,

Or

Shareholders in a member’s liquidation,

Or

As may be.

In a creditors winding up, usually with permission are:

– To pay a class of creditors

– To compromise debts or make arrangements with creditors

– To compromise calls and the liabilities to calls.

(see section 231 D, E and F of the Companies Acts).
The powers of a liquidator that usually do not require consent are:

– To bring or defend court proceedings in the name of the company

– To carry on the business of the company – (usually very rare)

– To appoint a solicitor

– To sell any property

– To execute all deeds

– To borrow – (usually very rare)

– Appoint an agent to assist them, such as an – estate agent.

– do whatever is incidental

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Under the 1990 Companies Act, the powers of a liquidator cannot be exercised before the creditors meeting. There is an exception to this rule that allows the liquidator to take control of the assets and realise perishable goods prior to the meeting.

Both a voluntary and court appointed liquidator to apply to court for directions on issues within the liquidation – in a court liquidation one applies for approval of the sale contract for any properties and/or business.

Section 290 is well known as the “disclaimer section” – it permits a liquidator to disclaim onerous property leases and contracts, with the approval of the court.

 

To schedule an initial consultation on winding up a company, contact us 24 hours a day, 7 days a week, at +35315134185 or contact@tullylegal.ie

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