Closing Down a Company
If you are one of the many directors in the unfortunate position of having to close down your company, you may be wondering how you go about it. In general there are there are two ways a company can be dissolved – by strike-off and by liquidation – with strike-off being more straightforward and relatively cheaper.
This blogpost covers the technical aspects of removing your company from the Register of Companies and with the Revenue Commissioners only. There will obviously be other considerations when closing down a business, including HR issues, which are outside the scope of this blog.
Let’s start with strike-off. There are two types of strike-off, involuntary and voluntary.
Involuntary Strike Off
Some directors just leave the company “die a death” that is, they fail to file annual returns and allow the Companies Registration Office (CRO) to strike off the company. The CRO can strike a company off the register if it has failed to file just one annual return. The company will get advance warning of the pending strike off and should it choose to ignore the reminders, the company will be struck off.
This course of action is not recommended as the consequences of this can be severe including:
- Any assets of the company becoming the property of the State
- Loss of the protection of limited liability is lost
- Possible disqualification of directors from acting as directors or having any involvement in the management of any company plus the costs of the Director of Corporate Enforcement in taking such an action.
Even if a company is struck off, creditors can apply to have the company restored and a liquidator appointed through the High Court. See High Court liquidation below.
Voluntary Strike Off
A company that has ceases to trade can apply to the Companies Registration Office to strike off the company provided there are no assets or liabilities in the company. In some cases, it may be necessary for directors to write off any loans owing to them from the company.
To apply for voluntary strike off the company will first need to ensure that all returns have been filed with the CRO and Revenue Commissioners. The directors should then request a letter of no objection from the Revenue Commissioners. On receipt of this letter, an advertisement needs to be placed in one daily newspaper with nationwide circulation and published not more than four weeks prior to the application for strike off. Therefore timing is crucial. (See Form H15 for details of which newspapers are acceptable.)
The advertisement should be worded as follows:
XY Limited [formerly EFG Limited], trading as Z, [and formerly having traded as W], having ceased to trade/never traded (as applicable) having its registered office at [123 Main St, Cork ] and formerly having its registered office at [100 Main St, Cork] and its principal place of business at [ 200 Main St, Cork], and having no assets or liabilities, has resolved to notify the Registrar of Companies that the company is not carrying on business and to request the Registrar on that basis to exercise his powers pursuant to section 311 of the Companies Act 1963 to strike the name of the company off the register.
By Order of the Board
Name of director/secretary (as applicable)
A director of the company then requests the CRO to strike off the company by sending a completed Form H15 to the CRO together with the letter of no objection from the Revenue Commissioners and the full newspaper page where the advertisement appears.
It can take a few months for the strike off process to be completed and the company will be asked on two separate occasions whether it still wishes to be struck off. The CRO will then advertise its intention to strike off the company in Iris Oifigiuil and a month later the company will be struck off and dissolved.
The company will need to separately deregister for taxes with the Revenue Commissioners by completing Form TRCN1.
See also Members Voluntary liquidation below.
Liquidation
In a liquidation the assets of the company are sold/realised by the liquidator and the proceeds are distributed to the creditors and members in order of priority, as determined by companies legislation.
There are three types of liquidation:
- Creditors voluntary liquidation
- Members voluntary liquidation
- Court liquidation
Creditors Voluntary Liquidation
A creditors voluntary liquidation is normally initiated by the directors of an insolvent company. If a company is insolvent and the directors believe that they are unable to return the company to a solvent position then they need to take professional advice and consider appointing a liquidator.
Insolvency occurs either where a companies debts are greater than its assets or a company is unable to pay its debts as they fall due.
A meeting of creditors is held (for which at least 10 days notice must be given). At this meeting, a brief statement is usually read out by the Chairman of the meeting outlining the reasons for liquidating the company. The creditors (or their appointed proxies) are given the opportunity to ask relevant questions. The liquidator’s appointment is confirmed at the meeting by the creditors who have the power to appoint an alternative liquidator if a majority (in value) of creditors support such an action.
The liquidator will contact creditors asking them to submit their claims against the company. This includes all classes of creditors, including employees and unsecured trade creditors.
Creditors of the company are entitled to join a Committee of Inspection who meet with the liquidator during the course of the liquidation to receive updates and to approve certain courses of action as proposed by the liquidator.
The liquidators will sell/realise the assets of the company and distribute the proceeds to creditors as appropriate. The liquidator will also investigate the collapse of the company and report any matters to the Director of Corporate Enforcement as appropriate.
Members Voluntary Liquidation
A members voluntary liquidation occurs when a solvent company is wound up. A majority of the directors must make a statutory declaration that they believe the company will be able to pay its debts in full within a period not exceeding 12 months from the commencement of the winding up. Within 28 days, the members must then pass a special resolution to wind up the company and appoint a liquidator. The resolution to wind up must be advertised in Iris Oifigiuil within 14 days of passing the resolution.
It is extremely important to complete and file the declaration of solvency correctly. Otherwise, the winding up can become a creditors voluntary winding up.
A members voluntary liquidation can be a tax efficient way for shareholders to restructure organisations or withdraw funds from a company on business cessation because the gain is normally taxed at the Capital Gains Tax rate as opposed to the higher Income Tax rate.
Court Liquidation
A court liquidation is commenced by order of the High Court on foot of a petition. The petitioner is usually a creditor who petitions on the grounds that a company is unable to pay its debts. An Official Liquidator is appointed by the Court with powers to liquidate a company, investigate its activities and pursue errant directors.
The above are the ways in which companies can be dissolved, some of which require the appointment of a liquidator. It can be an enormously stressful time, but the important thing for directors is to deal with the closure of a company as soon as possible. And the first step is usually to contact their accountant, who although they may not act as liquidator, can advise on how to proceed with the winding up.
NEXT STEP:
If you require any further information, please feel free to email me in confidence at noelm@parfreymurphy.ie.
[...] 1 May 2011 companies with more than €100 of issued share capital will not be able to avail of voluntary strike off. Such companies will instead need to be liquidated which is a more costly and complicated [...]
Would the above apply for an entity regulated by the CBI or are there additional considerations?
Its hard to believe how many companies have gone into liquidation in the last two years and still growing! Its awful to see. Thanks for distinguishing between member and creditor voluntary.