A Creditors’ Voluntary Liquidation is the most common liquidation process in Ireland. It is a process used to deal with a Company that is insolvent.
Creditors’ Voluntary Liquidation is usually initiated by the Company’s directors. The first step is for the board of directors to have a board meeting to agree that the Company should be placed into liquidation and that notices should be sent to shareholders and creditors.
A Members’ Voluntary Liquidation winds up solvent companies, and distributes surplus funds back to shareholders. High Court Liquidations are generally initiated by creditors seeking payment from insolvent companies.
Calling the Creditors’ Meeting
The 2014 Companies Act states that ten days’ notice of the meeting must be given to all creditors. The notice sent to creditors should be accompanied by a general proxy and a special proxy in the prescribed format, together with details of the proposed liquidator and the names and addresses of the creditors.
The 2014 Companies Act also provides that the meeting must be advertised at least ten days before the meeting in at least two daily newspapers “circulating in the district where the registered office or principal place of business of the Company is situate”.
Agenda for the Creditors’ meeting
A typical creditors’ meeting has three main items of business. These are:
- To present a Statement of Affairs to the creditors.
- To give the creditors an opportunity to appoint their choice of liquidator.
- To give creditors the opportunity to appoint a Committee of Inspection.
Statement of Affairs
Under the 2014 Companies Act, the directors of the Company are obliged to present a Statement of Affairs. The Statement of Affairs generally shows the book value of the Company’s assets together with their realisable value. The Statement of Affairs should also have a list of the Company’s creditors and the amount of each claim. The statement is prepared to a date close to the liquidation date.
What is the role of a Committee of Inspection?
The Committee of Inspection is made up of members and creditors and their function is to assist the Liquidator when requested, approve fees and legal actions and attend meetings to review the course of the Liquidation. Given the vital roles given to Committees of Inspection in the 2014 Companies Act, many liquidators will actively seek to have a Committee appointed.
What happens when a liquidator is appointed?
Once a Company is placed into liquidation the liquidator undertakes the following duties:
- Secures books, records and assets
- Process employee claims for arrears of wages, minimum notice and redundancy
- Investigates reasons for the liquidation
- Sells assets
- Submits report to the Office of the Director of Corporate Enforcement
- Agrees claims of creditors
- Pays dividends to creditors if asset realisations in the liquidation are sufficient
Insolvency Implications of the Companies Act 2014
Transitional Provisions: Schedule 6, paragraph 8
- Anything commenced and not completed may be continued under the new Act
- Includes winding up and examinership petitions nor disposed of before repeal
- Court may extend functions of court examiner to existing liquidations
- Sections 646 – 648 (liquidator’s remuneration) will not apply to existing liquidations (“Old” legislation applies)
- Where the time period for completing any action under the new Act differs from the time period in the old legislation, the longer time period of the two will apply to any matter commenced before the implementation of the new Act
Summary Approvals Procedure (IPs need to understand the procedure)
May be used for following:
- Financial assistance for acquisition of own shares
- Loans to directors
- Reduction of Capital
- Variation of Capital
- Solvent Voluntary Winding Up
- Pre-acquisition reserves
- Declaration by directors for each restricted activity
- Accountant’s report for certain activities
Section 429 & Section 436 (S.317 & S. 107) Notification that Receiver has been appointed
- Emails and websites must contain a statement that a receiver has been appointed
- Still necessary to advertise in Iris Oifigiuil, but no longer necessary to advertise in one daily newspaper
Section 437 (S.316) Receiver’s Powers
- Receiver’s powers are enumerated in legislation for the first time
- Section 437 (1) states that the receiver has the power to do “in the state and elsewhere all things necessary or convenient to be done for, or in connection with or incidental to the attainment of the objectives for which the receiver was appointed”
- Section 437 (3) lists out 20 powers: usual suspects of taking control, borrow money, carry on business, engage/discharge employees, appoint professional advisors, issue legal proceedings etc.
- However, Section 437 (4) recognises that it is possible that the receiver’s powers may be limited by the court or “the instrument under which the receiver was appointed” and states that s 437 (1) and (2) are subject to such provisions “being a provision that limits the receiver’s powers in any way”
Section 439 Connected Party Sale by Receiver
- 14 days’ notice required if sale is to a person who was a director within the previous 3 years. “Non –cash asset” and “requisite value” are defined in Section 238.: “its value is not less than €5,000 but, subject to that, exceeds €65,000 or 10% of the relevant company’s assets.”
Section 433 (S. 315) Regulation of Receivers
- No prescribed qualifications set out
- Section 448 provides for the possibility of a professional body to which a receiver belongs reporting particular types of misconduct to the Director of Corporate Enforcement
Section 519 Examiner’s Qualification
- Same qualifications as that for a liquidator, as set out below.
Examinerships: Jurisdiction of the Circuit Court Available for “Small” Companies
Section 350 (5) requirements for small companies are as follows. The qualifying conditions for a small company are satisfied by a company in relation to a financial year in which it fulfils 2 or more of the following requirements:
a) The amount of the turnover of the company does not exceed €8.8million;
b) The balance sheet total of the company does not exceed €4.4million;
c) The average number of employees of the company does not exceed 50
Section 542 Examinerships – Reduction of Capital
Specific provision is made for schemes involving a reduction of capital under S 542 (6) (b), following the decision of Finlay Geoghegan J in Re McEnaney Construction Ltd where it was held that a scheme could not provide for a reduction of capital unless this was specifically approved in accordance with legislation.
Section 450 (201) Schemes of Arrangement
Now possible to just have one court hearing instead of three.
- Scheme meetings may be convened by the Board of Directors
- Directors may advertise outcome of scheme meetings and court hearing to approve the scheme.
s.453(4) is a new provision (which already exists for examinerships) which allows State Authorities to vote in favour of schemes, thus removing any doubt as to whether they would be acting ultra vires.
Some companies may prefer to attempt a Scheme of Arrangement for a number of reasons, including less cost and less loss of control.
Section 561 Modes of Winding up
The legislation aims to streamline the provisions on the three types of liquidation.
The winding up of a company may be:
- by the court; or
Section 567 Application of Certain Provisions to Companies not in Liquidation
ODCE may, in respect of insolvent companies (as defined);
- Order return of assets improperly transferred
- Impose personal liability where adequate records are not kept
- Impose civil liability for fraudulent trading
- Summon persons for examination
- Inspect books and records
Section 569 (S.213) Circumstances in which company may be wound up by the court
- New sub- section: “if the court is satisfied on a petition of the Director that it is in the public interest that the company should be wound up”.
- Once a Company is wound up by Order of the Court, the liquidation is carried out as a Creditors Voluntary Liquidation. This change will make High Court liquidations considerably cheaper.
Section 570 (S.214) Circumstances in which Company deemed to be unable to pay its debts
- Minimum sum of €10,000 not paid within 21 days
- Or, if 2 or more creditors owed more than €20,000 not paid for 21 days
- As High Court liquidations will be cheaper to do, we should see an increase in High Court petitions, as the indemnities to liquidators should be much more affordable.
Section 579 Commencement of a Members Voluntary Liquidation
- Must use the Summary Approvals Procedure unless the winding up is:
- In the expiry of the period fixed in the constitution of the company; or
- To occur on the happening of a certain event as set out in the constitution of the company (These exceptions can use the “old” procedure or may also use the Summary Approvals Procedure.)
- Directors’ declaration has changed. It will no longer be a statutory declaration and it will not be required to be sworn. “Part B” to accountant’s report is no longer required.
The Declaration must be:
- Made in writing
- By all or a majority of directors
- At a meeting held not earlier than 30 days before the shareholders meeting
- State the amount of current assets and liabilities
- That the company will be able to pay its debts in full within 12 months of commencement of winding up
- Accompanied by an auditors report stating that the declaration is not unreasonable
- Appended to shareholders notice/resolution
- Delivered to CRO within 14 days
Section 587 (S.266) Meeting of Creditors (CVLs)
The Notice shall:
- State the date, time and location of the meeting
- State the name and address of the proposed liquidator, if any
- Attach a list of the creditors of the company OR notify creditor of his rights to inspect the list of creditors
A Creditor may, with 24 hours’ notice, inspect the list of creditors at the registered office OR request the company to deliver a copy of the list of creditors.
Section 596(2) Custody of Company’s property
(2) A person who, without lawful entitlement or authority, has,
(a) at the date of appointment of a liquidator to a company, possession or control of the books, records or other property of the company, or
(b) subsequent to such date comes into such possession or control, shall surrender immediately to the liquidator such books, records or other property, as the case may be.
Section 595 Notification that a Company is in Liquidation etc.
Websites and emails shall contain a statement that the company is being wound up (prominent place on website)
Section 604 (S.286) Unfair Preference
The term “fraudulent” has been changed to “unfair” to reflect that the Section may be triggered in the absence of fraud.
Will this change in wording enable Revenue attachments to be overturned?
Section 609 (S.204) Personal liability of Company where adequate accounting records not kept
The term “proper books of account” replaced by “adequate accounting records”.
Section 617 (S.281) Costs, etc. in winding up
New cost inserted “Any cost and expenses necessarily incurred in connection with the summoning, advertisement and holding of a creditors’ meeting under Section 587”
Accordingly, fees due to professional advisors for organising creditors meetings and which were previously disallowed following the Compustore Ltd case are now allowed as an expense.
Section 618 (S.275) Distribution of properties of Company
- The use of the term “asset” has been changed to “property”
- S. 618(3) and S.618(4) “re-enact” Article 137 of Table A which allows distribution of assets in specie (No need to check Articles of Association in future!)
Section 621 (S.285) Preferential payments in a winding up
- References to other Acts updated
- Workmen’s Compensation Acts preferential liability abolished
Section 626 (S.226) Powers of Provisional Liquidators
- A provisional liquidator has such powers as the court orders
- The court may decide to place restrictions on powers of directors
Section 627 (S.231) Liquidator’s Powers
- Contains a table setting out the liquidators powers. The powers of a liquidator in the three types of liquidation are now uniform.
- The Explanatory Memorandum describes the following as a new power? : ascertain the debtors and liabilities of the Company
Section 629 (S.231 & S.276) Notice to be given with respect to exercise of powers
- The liquidator shall, within 14 days of exercising any of the following powers
- Take any legal proceedings
- Defend any legal proceedings
- Recommence the business
- Continue the business
- Appoint a legal practitioner
- Pay any class of creditors in full, compromise debts etc.
- In a CVL or court liquidation, notify the Committee of Inspection. If no Committee, notify the creditors
- In a MVL, notify the members
- The liquidator or any member of the committee of inspection shall not, directly or indirectly, purchase any part of the company’s property unless prior sanction has been obtained from the committee or the creditors. The costs of obtaining such sanction shall be paid by the purchaser.
Section 632 (S.244) No lien over Company’s book and records etc.
New subsection: Any person who withholds possession shall be guilty of a Category 3 Offence.
Section 633 Qualifications necessary for Appointment as Liquidator or Provisional Liquidator
- Members of a prescribed accountancy body
- Practising Solicitor
- Member of other professional body recognised by Supervisory Authority
- Person qualified under the law of another EEA state
- Person with practical experience of windings up and knowledge of relevant law (grandfathering provision)
Section 641 Position when there is more than one liquidator
- Liquidators must meet professional indemnity regulations made by the Supervisory Authority
- Does not apply to “old” liquidations
Section 646 Liquidator’s remuneration – now a 2 step process
- Officers or employees of the company within previous 24 months, (previously just 12 months)
Section 666 (S. 232) Appointment of a committee of inspection in court ordered winding up
- If more than one liquidator is appointed the court or meeting may resolve how joint liquidators are to perform, if not resolved, those things may be performed by not less than 2 of them
Section 668 (S. 233) Constitution and proceedings of committee of inspection
Similar provisions as before. However, two new significant subsections:
(9) A member of the committee shall not make a profit from the winding up, except with the leave of the court or the sanction of –
(a) in the case of a members’ voluntary winding up, a resolution of the company, or
(b) in the case of a creditors’ voluntary winding up, a resolution of the creditors of the company.
(10) At a meeting of creditors, a resolution shall, for the purposes of this section (other than subsection (9)(b)), be deemed to be passed when a majority in number of the creditors present personally or by proxy and voting on the resolution have voted in favour of the resolution.
Watch out for S.701 “no person appointed as a proxy shall vote in favour of any resolution which would directly/indirectly place himself to receive remuneration out of the assets of the company.
Watch out for confusing rules on creditors’ voting thresholds at creditors meetings
- 588 (Voting on appointment of liquidator at a creditors meeting) Voting is by majority in value.
- 668 (Constitution of Committee of Inspection) Voting thresholds depend on resolution: may be either majority in number and value or majority in number of creditors
- S.695 (Passing resolutions) Voting threshold is majority in number and value (except for votes on choice of liquidator, removal of liquidator or certain resolutions relating to constitution of committee.)
- By a process of logical deduction: voting on liquidator’s remuneration by creditors is done by a majority in number and value.
Section 678 (S.222) Actions against Company stayed on winding up order
- No action or proceedings shall be proceeded with or commenced against the company except by leave of the court (previously actions stayed only in Court liquidations).
- Stay does not apply to Employment Appeals Tribunal or applications to the Injuries Board.
Section 680 Duty of Liquidator to call meeting at end of each year
Must summon a Committee of Inspection. If no Committee, a meeting of the creditors. (Major change: annual meetings of creditors may not be necessary.)
Section 681 Information about progress of liquidation
Forms E4 (Liquidator’s affidavit) now required after just 1 year and then every 6 months. (Previously 2 years and every 6 months in a CVL, and 2 years and every year in a High Court)
Section 688 Reporting to Director of misconduct by liquidators
Where a disciplinary committee finds that a member has engaged in misconduct, the matter shall be reported to ODCE
Section 700 Duties of Chairperson
Chairperson of a meeting shall keep minutes of the meeting (previously this stipulation was contained in the rules of the Superior Courts)
Section 705 (S.263) Final Meeting in a MVL
- 28 days’ written notice to the members
- No statutory advertisement
Section 705 (S. 273) Final Meeting in a CVL
- 28 days’ written notice to members and creditors
- No statutory advertisement
Section 707 (S.305) Disposal of Books & Records
Must retain books and records for a minimum of 6 years after dissolution (previously 3 years)
Section 819 Restrictions & Disqualifications of Directors
- Minimum share capital amounts increased to €500,000 for a PLC and €100,000 in the case of any other company.
- New restrictions on company having a “restricted” person from acquiring certain non-cash assets unless certain conditions are satisfied.
- Directors may avoid a court appearance by giving an undertaking to ODCE that they will allow themselves to be disqualified. (Possible savings in legal costs.)
Changes in Companies Registration Office forms
- Substantial changes to CRO forms.
- Only “new” forms can be used after 1 June 2015.
Other issues for Insolvency Practitioners arising from the Companies Act 2014
- Investigation programmes will need to be updated to check that directors have complied with additional responsibilities, assessing validity of charges, loans to directors etc.
- Understanding differences between Limited Companies and Designated Activity Companies
- Format of members proxies changes. See Section 184
- High Court liquidations previously exempt from corporation tax on trading income: now may be taxable?
- Will TUPE exemption that previously applied to High Court liquidations apply to liquidations that are initiated by High Court petition?
What’s to come?
- Rules of Superior Courts to be updated
- CRO Forms to be finalised
- Statements of Insolvency Practice to be updated
- High Court interpretations of any new issues etc.
How Can We Help?
We understand that liquidations are very stressful for people. We can help remove some of the stress by explaining the process and advising you on how to fully prepare yourself for the liquidation. We can expertly deal with all issues, including employee claims. We can advise on all the necessary steps to place a Company into a liquidation. We can also act as liquidators. We have extensive experience of all types of liquidations (from companies limited by guarantee to Public Limited Companies) and also experience of all types of industry ranging from construction, hospitality, to services and manufacturing.
We provide a free consultation to directors seeking advice on their options for dealing with insolvent companies.