If a company has become insolvent and the directors consider that they are unable to return the company to a solvent position then they need to take professional advice and consider appointing a liquidator.
There are two definitions of insolvency – one is where the company is unable to pay debts as they fall due and the other is where the liabilities exceed assets.
If it comes to a liquidation then what happens is that the assets of the company are sold and the proceeds, in the order of priority as set out by company law, are distributed to the creditors and members.
There are three types of liquidations:
1. Creditors voluntary liquidation
A creditors voluntary liquidation is normally initiated by the directors of an insolvent company. There are certain statutory responsibilities and procedures which need to be complied with for this to happen (we can help with this).
A company must give at least 10 days notice of a creditors’ meeting by placing an advert in two daily newspapers and by way of post to each creditor.
The creditors will also be given two proxy forms: a General Proxy and a Special Proxy.
The General Proxy is used to appoint an individual to appear on behalf of the creditor company. The form must be signed under the company common seal or duly authorised officer. This Proxy form is usually used by limited liability companies or partnerships to appoint people to represent them at a meeting of the creditors. A sole trader is not required to complete a General Proxy and may attend the meeting personally.
A Special Proxy is used by a creditor to exercise a vote on a specific Resolution.
Proxies must be completed and filed within a specified time period and sent to the registered address of the company before 4 p.m. on the day prior to the meeting of creditors.
The creditors meeting takes place at the place and time specified in the newspaper advert. The meeting is chaired by a director of the company who may be assisted by an accountant or legal advisor.
Each attending creditor will be given a copy of the directors Estimated Statement of Affairs. This lists the assets of the company and states the book value, an estimated realisable value and a list of creditors analysed between preferential and unsecured creditors.
A brief statement is usually read out by the Chairman of the meeting outlining the reasons for liquidating the company. The creditors are given the opportunity to ask relevant questions. Only the duly appointed General Proxy holders are entitled to ask questions on behalf of companies or partnerships.
The liquidator’s appointment is confirmed at the meeting by the creditors. Usually the liquidator will be a nominee of the company’s members, but the creditors have the power to appoint an alternative if a majority of creditors (according to value) support such an action.
Creditors of the company are entitled to join a Committee of Inspection. This is a voluntary role and the members of this Committee will 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.
On appointment the liquidator will contact creditors asking them to submit their claims against the company. The liquidator will accept claims for all classes of creditors, including employees and unsecured trade creditors.
If a creditor is claiming retention of title to any goods supplied to the company under a retention of title clause in the terms and conditions of sale the liquidator should be provided without delay with the following:
- Copy of the terms and conditions of sale
- Date when the terms and conditions of sale were notified to the company
- Evidence that the terms and conditions of sale were accepted by the company and the date of such acceptance.
- Confirmation on how long the creditors has been trading with the company.
- Copies of all unpaid invoices supported by proof of delivery and statements.
The liquidator’s duties include:
- realising all the assets of the company for the benefit of the creditors,
- investigating the collapse of the company,
- reporting to the Director of Corporate Enforcement in accordance with the Company Law Enforcement Act 2001 and complying with the relevant provisions in the Companies Acts regarding liquidations.
The liquidator will from time to time update the creditors in relation to the expected outcome of the liquidation.
2. Members voluntary liquidation
A members voluntary liquidation occurs when a solvent company, which the directors determine has no further useful purpose, is wound up to realise its assets and distribute its surplus to the shareholders in a tax efficient way.
The gain on shareholders funds is normally taxed at the Capital Gains Tax rate as opposed to the higher Income Tax rate. So, a members voluntary liquidation can be a tax efficient way for shareholders to restructure organisations or withdraw funds from a company on business cessation.
We can help the directors in the preparation of the Declaration of Solvency and provide advice on the procedures necessary for the calling of an Extraordinary General Meeting including the filing requirements to achieve an orderly wind down and distribution of assets.
3. Court liquidation
A court liquidation is commenced by order of the High Court following a petition made to them. The petitioner is most likely to be the company itself or a creditor who would petition 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.
Noel Murphy, an Insolvency Practitioner with Chartered Accountants Ireland, can help you with any urgent advice you need on your personal exposure and legal responsibilities if your company has become insolvent.
Noel accepts appointment as liquidator to realise the assets of the company for the benefit of all the creditors and has a successful record in liquidating companies without undue delay.
If your company is threatened with or has become insolvent why not call Noel Murphy today on 021 431 0266 for expert advice and help.