Background Planning

The insolvency of a company can be a very distressing and stressful time for its directors. In many cases, the financial difficulties facing a company have been caused by factors beyond the company’s control. These factors can include the loss of a major customer, a lack of profitability due to below cost pricing by competitors, exchange rate movements and other factors.

Whatever the cause of the company’s insolvency, much of the stress and anxiety can be reduced if the directors seek advice from Professionals.

In the first instance, we recommend that directors seek advice from their existing accountants, who will have had experience of advising similar companies previously.

Running at about ten per week in this country, Creditors’ Voluntary Liquidations remain the most common way for directors and shareholders to deal voluntarily with their company’s insolvency. The procedure allows directors to deal with the winding up of their company in a responsible manner.

Once the directors take a decision to wind up the company, there are certain formal legal steps that must be taken. A formal meeting of the shareholders needs to be held to put the company into liquidation and to appoint a liquidator.

A creditors’ meeting must also be held. Notices of the meeting of creditors must be sent by post to the creditors at least 10 days before the date of the meeting with proxy forms. Notice of the creditors’ meeting must also be advertised in two daily newspapers circulating in the vicinity of the registered office or principal place of business of the company.

Virtual Meetings

The Consultative Committee of Accountancy Bodies of Ireland, CCAB-I, issued on 16th April 2020 the following technical guidance to members in response to Covid.

In order to comply with current government and health care advice during the Covid-19 pandemic physical meetings of members and creditors cannot take place. In order to allow Section 587 meetings of creditors and other meetings of members and creditors to take place it is proposed that
the meetings be held remotely by telephone and/or video conferencing facilities. This allows appointments to proceed and provide creditors and members with the opportunity to participate in meetings and request any additional information.  Until such time as any legislative changes are introduced, this provides a practical and pragmatic solution to be applied by Insolvency Practitioners.

The manner in how the telephone video conferencing is to be carried out, is dependent on the facilities available to each firm and will also depend on the number of creditors in each case. As we cannot assume that all creditors will have access to the internet, it is recommended that telephone conferencing is also offered. As with physical meetings, it is important to know who is in attendance, therefore it is recommended asking creditors to register in advance of the virtual meeting so they can be sent details, rather than sending any log-in details with the notice. IPs may also consider emailing a copy of the directors statement of the position of the company’s affairs, list of creditors with estimated claims and any other information being provided to the meeting on the morning of the virtual meeting to those creditors who have submitted proxy forms and requested attendance.

The following wording has been recommended for insertion in IPs’ standard S587 notices:

In order to comply with current government and health care advice during the Covid-19 pandemic, a physical meeting of members and creditors cannot take place. In order to provide creditors with the opportunity to participate in the meeting and request any additional information, the meeting will be held remotely by telephone and/or video conferencing facilities.
In order to make suitable arrangements to ensure that all those wishing to participate are able to take part, creditors are requested to submit their proxy form in advance of the meeting and indicate that they wish to be sent details by email of how they may participate in the meeting at the required
time.

As is normally the case, creditors who do not wish to take part in the meeting may vote for or against any resolutions by completing and submitting proxy forms prior to the meeting. Following the meeting a copy of the report presented to the meeting and details of outcome of the
meeting will be sent to all creditors.

Section 587 – Additional paragraphs for insertion into statutory notices published:

In order to comply with current government and health care advice during the Covid-19 pandemic a physical meeting of members and creditors cannot take place. In order to provide creditors with the opportunity to participate in the meeting, the meeting will be held remotely by telephone and/or
video conferencing facilities. In order to make suitable arrangements to ensure that all those wishing to participate are able to take part, creditors are requested to submit their proxy form in advance of the meeting and indicate that they wish to be sent details by email of how they may participate in the meeting at the required time.

Statement of Affairs

The directors are obliged to present a full statement of the position of the company’s affairs, together with a list of creditors of the company and the estimated amount of their claims to the meeting of creditors. This statement will show the book values of the company’s assets with the directors estimated realisable values in a winding up.

Directors Statement

At the creditors’ meeting the nominated director, who acts as chairman of the meeting, will give a brief outline of the history of the company and details of the causes of failure. It is advisable for the director to seek professional advice on the preparation of this statement.

Proxies

The notice sent to the creditors convening the meeting must attach a general and special form of proxy.

Generally speaking, if a company wishes to ensure that its choice of liquidator remains appointed, then it needs to seek the support of as many creditors as possible and encourage them to return proxies that are validly completed and are in favour of the chairman.

The creditors of the company will either be limited companies or creditors who are owed monies personally. The rules governing the conduct of creditors’ meetings state that a proxy representing a limited company must be appointed:

  1. under the common seal of the company ; or
  2. under the hand of some officer duly authorised who must state that fact on the proxy form.

In practice, to avoid any dispute over the admissibility of a proxy submitted by a limited company, it is advisable that the person duly authorised who signs the proxy on behalf of the creditor writes in beneath his name the following: “Duly authorised officer of the company”.

Voting on the Nomination of the Liquidator

The nominated liquidator should not have previously acted for the company or its directors in a professional capacity. Under existing legislation, in order for the creditors to overturn the company’s nomination of liquidator, they must have sufficient votes in value of the creditors represented to carry the resolution.

Format of the Creditors’ Meeting

Generally speaking, the creditors’ meeting will take the following format:

  • The creditors will be handed a copy of the directors’ estimated statement of affairs.
  • The nominated director will read out his statement outlining the company’s history and causes of failure.
  • Any creditors present may then ask questions.
  • At an earlier meeting of shareholders, a liquidator would have been appointed by the company. However, the creditors have an opportunity to nominate an alternative liquidator. If an alternative nomination for a liquidator is proposed, a formal vote needs to be taken.
  • The creditors may decide to appoint a committee of inspection. The creditors are entitled to nominate up to five people onto this committee, and the shareholders are entitled to appoint three people. The purpose of the committee is to assist the liquidator in carrying out his duties. The committee can also approve the liquidators fees.

Questions asked at the Creditors Meeting

The creditors are entitled to ask questions that relate to the company’s affairs. It is possible that some creditors will send along, or attend the meeting with, professional representatives who are very knowledgeable about insolvency matters. A flavour of some types of questions that may be asked are set out below:

  1. When did the company cease trading?
  2. When did the directors first realise the company was insolvent?
  3. Provide details of all major payments made in the past three months?
  4. When was the last set of audited accounts prepared?
  5. Did the bank have personal guarantees as security for the company’s lending?
  6. Who owns the building that the company operated from?
  7. Will the directors continue the business through another company?

Specific questions may also be asked on the statement of affairs presented to the meeting. Creditors attending the meeting may have copies of the last set of accounts filed at the Companies Registration Office, and they may ask questions based on these accounts.

Having organised thousands of creditors meetings over the years, we have the expertise and the knowledge to professionally organise creditors’ meetings so that at at least some of the stress on directors is removed.

For further information please contact Jim Stafford,  Tom Murray or Andrew Hendrick on 01 661 4066 or jim.stafford@frielstafford.ie tom.murray@frielstafford.ie  andrew.hendrick@frielstafford.ie