Tipp FM Legal Slot – 8th May 2012
John M. Lynch on Winding Up of a Company[soundcloud id=’167083714′]
What is Insolvency?
Insolvency arises when a company is no longer capable of meeting its debts. When a company becomes insolvent there are two options available:
What is Liquidation?
Liquidation is when the assets of the company are collected and sold, with the proceeds of sale used to pay off the creditors. The members will receive the balance outstanding after the costs and expenses of the liquidation itself have been paid off. There are different types of liquidations, namely Creditors’ Liquidation, Compulsory Liquidation and a Members’ Liquidation.
Creditors’ Voluntary winding up
What is a creditors’ voluntary winding up?
A creditors’ voluntary winding up involves the creditors of a company appointing a liquidator.
How does it arise?
A creditors’ voluntary winding up can arise in a number of ways including:
1. If a company is insolvent the members of that company can hold a meeting and pass an ordinary resolution that the company is to be wound up. They will also appoint a liquidator at this meeting. The members of the company must also call a meeting of the creditors of the company on the same day or the day after their meeting in which they pass the ordinary resolution and the company must publish notice of this creditor’s meeting in newspapers prior to the meeting taking place.
The purpose of the creditor’s meeting is to inform the creditors of the position of the company, and to furnish them with a statement of the accounts and liabilities of the company.
At the creditor’s meeting the creditors can agree with the liquidator appointed by the members, or they can appoint their own liquidator. At the appointment of a liquidator by the Creditors this winding up then becomes known is a creditors’ winding up. It is important to note that a liquidator appointed by either the members or the creditors must consent to acting.
The creditors may also then appoint a Committee of Inspection whose purpose is to monitor the winding up and to fix the remuneration of the liquidator. The remuneration of the liquidator involves his costs, fees and expenses. This Committee of inspection is made up of nominees of both the creditors and the members. The liquidator will call meetings of the members and creditors at various intervals throughout the winding up of the company and present accounts of the company at these meetings. The company is considered to be resolved within three months of the final accounts being presented to the Registrar of Companies.
2. A creditors’ voluntary winding up can also arise when liquidation commences as a members’ winding up. A members’ winding up commences when both the members and the directors pass a resolution that the company is to be wound up. The directors must make a Statutory Declaration of Solvency wherein they state that the company is solvent and will be able to pay its debts within twelve months from the commencement of the winding up. This winding up becomes a creditors’ voluntary winding up when one fifth of the creditors in number or value apply to the Court to have the members winding up converted into a creditors winding up. The Court will grant this Order if it is satisfied that the company is unlikely to pay its debts within the time specified in the Declaration of Solvency.
3. A creditors’ voluntary winding up can also be commenced where a members’ liquidation is converted into a creditors winding up. This can occur where the members’ liquidator calls a creditors meeting when he forms the opinion that the company is not able to pay its debts and the creditors must be given the chance to take over.
What happens once the creditors’ voluntary liquidation commences?
In a Creditors Voluntary Liquidation, the Liquidator is appointed to the company by the Creditors of the insolvent company. The process commences with the Directors passing a resolution to make a recommendation to the Members that a Liquidator be appointed because the company is insolvent and cannot pay its debts as they fall due. The Liquidator is responsible for realising all of the company’s assets on behalf of the creditors and shareholders. The Liquidator reports to the Director of Corporate Enforcement in accordance with the Company Law Enforcement Act, 2001.
Compulsory Winding Up
What is a compulsory winding up?
A compulsory winding up is when a Court orders that a company winds up.
How can it arise?
Section 212 of the Companies Act 1963 gives the High Court jurisdiction to order that a company be wound up on the application of the company itself, any creditor or member of the company. The Minister can also present a petition to have a company wound up, as well as any person who claims they are being oppressed under Section 205 of the 1963 Companies Act.
On what grounds can a High Court order that a company is wound up?
These grounds are set out in Section 213 of the 1963 Act:
- Where a company resolves by Special Resolution to have the company wound up in this way;
- Where the company has not done business for a full year since incorporation or has suspended business for a year;
- Where the number of members of the company has fallen below the statutory minimum;
- Where the company is unable to pay its debts;
- Where it is deemed to be just and equitable to wind up the company and where a member is being oppressed or his interest are being disregarded.
What are the duties of a liquidator?
The Liquidator has a wide variety of powers, but he must work under the supervision of the court.
The liquidator appointed by the High Court must publish notice of his appointment in Iris Oifigiuil and two newspapers. The liquidator will collect and realise the assets of the company and distribute them amongst the creditors. He may then make an application to Court to determine question of priority, i.e. to decide who will be paid first. The Court also may also call upon the liquidator to examine the conduct of the company directors prior to the winding up, and it is a liquidator who will bring the actions for reckless trading as well as applications for restrictions and disqualification of directors.
Members Winding Up of Companies
What is a Member’s voluntary winding up?
A members’ voluntary winding up arises where a company resolves by special resolution that it should be wound up voluntarily.
How does a members’ voluntary winding up come about?
- The directors must pass a special resolution that the Company should be wound up and then make, within twenty eight days prior to the passing of the special resolution of the members, a Statutory Declaration of Solvency declaring that the company will be able to pay its debts within twelve months from the commencement of the winding up. This Declaration must also contain a statement of the assets and liabilities of the company up to the date prior to the declaration. It is important to note that directors can be held personally liable for the debts of a company if they make a Statutory Declaration of Solvency without any reasonable grounds for doing so.
- An independent person must also present a report confirming the company is solvent.
- A meeting of the Shareholders must then be held and they must approve that the Company should be wound up. This resolution must then be published in Iris Oifigiuil. The winding up is then thought to commence at the date the resolution has been passed by the members of the company.
- The members then appoint a liquidator at that General Meeting. As previously discussed, that liquidator must consent to his appointment and his remuneration is then fixed by the members at that meeting. The Liquidator must convene a meeting of the members and present an account of how the winding up was carried out. Once again a company is said to be dissolved within three months of the final accounts being presented to The Registrar of Companies.