Option One: Liquidation - Page 2
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This relates to the winding up of a company by the court. The 1963 Act provides that in certain circumstances the court may order the winding up of the company on the petition of a person or body entitled to make such an application. Such petitions are most commonly presented by the creditors of the company.
The grounds upon which the company may be wound up by the court are set out in s.213 of the 1963 Act, including where the company is unable to pay its debts (s.213 (e)). This occurs where a creditor of a company has not been paid debts owing to it and suspects that the reason for the non-payment is the insolvency of the company. The creditor will be concerned that if the company continues to trade this will further undermine the company’s ability to pay the debt which is due and owing.
Process?
- The Creditors petition; Proving insolvency of the company
A creditor issues a 21day letter of demand to the company. Should the debtor company fail to discharge the debt within this time frame this is accepted as prima facie evidence of the debtor company’s insolvency. Alternatively non-payment of their debt may suffice.
The Directors/ Shareholders petition:
A court liquidation here is initiated by the passing of a resolution of the Board. The Directors must submit a statement of affairs to the High Court. - Drafting petition papers
Carried out by a solicitor with appropriate insolvency expertise and my take a number of days to complete.
The petition papers should outline a brief history of the company and its function, a brief analysis of the company’s financial performance over the past 3-5 years, a description of the problems being faced by the company followed by a conclusion as to why the company should be granted an order from the company to be wound up.
Relevant exhibits and affidavits will be submitted with the petition. - Bringing a petition under s.214 CA 1963
Following submission of the petition the case is listed on the Chancery listing of the High Court. The papers are reviewed by the sitting judge who will then make the decision on whether to appoint a provisional or official liquidator.
Provisional Liquidator
If a provisional liquidator is appointed, it is normal for the judge to grant a return date in approximately two to three weeks time at which stage the provisional liquidator I required to submit a report to the High Court.
Official Liquidator
At this hearing, and following a review of the provisional liquidators report, the Judge may grant the appointment of an official Liquidator if the company has failed to address the issues outlined in the petition papers.
Role of the High Court Examiner
On the appointment of the official liquidator the case is then listed for its first consideration hearing in the Examiners Court, which is generally 3-6weeks after the official liquidator’s appointment. The official liquidator is required to issue a report to the High Court at this hearing updating the court on all matters relating to the case.
The High Court examiner acts as an intermediary between an official liquidator and the judge. The examiner will help the Liquidator with the liquidation process.
Proving Insolvency
S.214 of the 1963 Act assists creditors in establishing proofs that a company is unable to pay its debts. The three circumstances in which a company would be deemed unable to pay its debts are:
- If a creditor is owed an amount in excess of €1,269.74 and has served a “21 day letter” at the company’s registered office demanding that the company pay the sum due within twenty one days.
- where a judgment against the company remains unsatisfied
- where it is proved otherwise to the satisfaction of the court that the company is unable to pay its debts
When is a court liquidation appropriate?
A court liquidation differs from a creditors’ voluntary liquidation in that there is no meeting of creditors to wind up the company; there is no need to give the statutory 10 days notice and a delay in the appointment of a liquidator can be avoided by the appointment of a provisional liquidator.
A petition to wind up a company and have a provisional liquidator appointed is a valuable tool in circumstances where there is a risk that the business or assets of the company may be substantially devalued due to the issuing of notices to creditors (advertising that you are in difficulties people will exploit this knowledge when purchasing the company’s assets) and/or the cessation of the company’s trade during the 10 day notice period.
A petition to the court for the winding up the company can be made by the directors, shareholders or the creditors.
Relief’s for the company where petition made;
Abuse of process
We can advise you where creditors are attempting to use the compulsory winding up procedures as a means of taking advantage in a dispute they may have with the company in relation to alleged debts owed.
Where your company in good faith and on substantial grounds disputes any liability in respect of the alleged debt we can present such to Court who will, if satisfied the debt is bona fide disputed, dismiss the petition.
Interlocutory injunctions to restrain the petition
A petition to wind up the company can pose a serious threat particularly if it creates panic amongst other creditors of the company. If other creditors become nervous and all demand to have their monies repaid immediately this can be disastrous for the company’s cash flow and could result in the collapse of the company.
In those circumstances the company may wish to prevent a creditor from presenting the petition in the first place. This will occur for example where the company receives a 21 day letter and you decide to seek an injunction from the High Court preventing the presentation of the petition.
In order to obtain this it is necessary to establish at least a prima facie case that the presentation would constitute an abuse of process. In this regard the High Court has distinguished between two situations:
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Where the company denies all liability to the creditor
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Where the company admits that it is indebted to the creditor but not to the extent which the creditor is claiming.
In the former position only would the creditor be restrained from bringing the application to wind up the company.
Proving non-payment is bona fide
Lodging the alleged monies owed with the court while seeking an interlocutory injunction would be one way of demonstrating that the reason for the non-payment of the monies is based on the company’s view that the monies were not owed rather than on any question over the company’s insolvency.
What is the liquidator’s role & function?
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Take possession & list of all the Company’s assets at date of appointment.
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Collate a list of people creditors and how mush they are owed.
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Liaise with employees to finalise any claim they may have against the company.
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Verify the validity of charges.
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Verify the validity of prior insolvency appointment i.e. a Receivers appointment or the review of any Examinerhip.
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Disclaim unprofitable contracts.
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Pay the company’s debts in the fixed order laid down by statute.
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Investigate the company’s affairs. Report any suspected criminal offence.
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Apply to the High Court.
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Write a report on the winding up.
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Convene a meeting of members and a meeting of creditors at the end of the first year of the winding up and at the end of every subsequent year after that.
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Deliver a final statement of the receipt and payments to the Company’s Registration Office.
Effect of Liquidation
The company is analogous to a trustee of its assets. Once the liquidator has realised all the assets of the company and distributed those assets in accordance with the Companies Act the company is effectively dissolved and the separate legal personality of the company only disappears when the Registrar of Companies removes the company from the registrar of companies