Company Formation and Insolvency – Latest News
Examinership is a procedure which provides companies with breathing space to restructure and to overcome financial difficulties. It involves the appointment of an examiner, usually a practicing accountant, who devises a scheme of arrangement to rescue the company. To appoint an examiner the High Court must be satisfied that there is a reasonable prospect of survival of the company. In addition to the statutory requirements, as set out in the Companies (Amendment) Act 1990, being satisfied by the High Court, commercial considerations such as the protection of jobs and new investment are also taken into account.
During the examination period the company enjoys statutory protection from creditors’ claims for a period of 70 days which can be extended up to a 100 days or more by the High Court. In practice Judges will extend the protection period if it aids the rescue of the company. During this “breathing space” the company is immune from litigation, directors remain in control of the day to day running of the company which continues to operate and to seek investment.
All classes of creditors and members must be treated equitably and fairly and the proposals shall not unfairly prejudice any creditor class. If the scheme of arrangement is approved by the High Court it becomes binding on the company, its members and its creditors. In practice preferential secured creditors will receive a better percentage offer in settlement of their claims than unsecured creditors. As a scheme of arrangement which is not confirmed will result in unsecured creditors facing a potential zero return, unsecured creditors will generally support the examiners’ scheme rather than seeing the company being wound-up.
The High Court has on 11 March 2013 delivered an interesting judgment in the case of Mountainview Foods (in voluntary liquidation) regarding Creditors’ Meetings which emphasises and clarifies the importance of providing the correct proxy forms and of using them appropriately if a creditor is unable to attend personally.
The applicant, a Polish company, alleges that had it been allowed to vote, a liquidator nominated by the majority of creditors and not the liquidator appointed by the shareholders would have been selected. The Chairman had refused the applicant’s proxy to vote in favour of the applicant’s nominee as the applicant mistakenly returned both the General and the Special Proxy to the Company and also because it had not fully completed the Special Proxy form.
The Court concluded that the Special Proxy form sent by the Directors to the applicant before the meeting “was so flawed that it could not be interpreted or completed in a meaningful way” and that it was “utterly meaningless because the blank form furnished by the Company to the creditors did not conform with Form No. 22”.
While the Court in the circumstances decided in favour of the applicant, it is to be noted from this decision that it is crucial for companies in that situation to use the specimen proxy forms precisely as set out in the Companies Acts. Also, creditors who wish to attend the creditors’ meeting should be extremely careful when completing the proxy form and returning it to the registered office of the debtor company.
Another point raised in the judgment is the return of the signed proxy form to the Company’s registered office by fax. The Chairman in this case had refused to admit proxies which were submitted by fax and he argued that the law does not allow for that. The Court however, following previous Irish and UK case law, held that sending the proxy by fax complies with the law and is sufficient.
If you require our assistance in preparing for your company’s creditors’ meeting or if you wish for us to attend a meeting on your behalf, please contact us and we would be happy to help.
The Personal Insolvency Act 2012
The Personal Insolvency Act 2012 was signed into law on 26 December 2012. It introduces some major changes to the existing bankruptcy legislation such as the reduction of the bankruptcy period from 12 years to three years. It does not apply to corporations.
The Act provides for three forms of non-judicial debt settlement mechanisms available only to private individuals who are insolvent and who meet a number of other specific requirements:
1. The Debt Settlement Arrangement (DSA) applies to unsecured debts over €20,000. Under this scheme, the debtor pays off as much of the debt as is possible having allowed for “a reasonable standard of living”. After a period of five years the outstanding debt is written off.
2. A Debt Relief Notice (DRN) is applicable to unsecured debts of up to €20,000. Where the debtor does not have any assets or savings over €400, a net disposable income of less than €60 per month and no realistic chance of becoming solvent, the debt will be written off after a three year period.
3. Personal Insolvency Arrangements (PIA) generally allow for settlements of secured debts of up to €3,000,000. PIAs require the debtor to reach an agreement with his creditors whereby he pays off as much of the debt as possible for a period of six years after which the remaining debt is written off.
This is only a brief outline of the legislation. The Act contains very detailed requirements and provisions regarding each of these three options.
If you require advice as to how this new legislation may affect your company, please contact us.
The Companies Bill 2012
The Companies Bill 2012 was published on 21st December 2012 by the Minister for Jobs, Enterprise and Innovation, Richard Bruton. The Bill contains a proposal to drastically reform the company law in Ireland.
It consolidates the existing Companies Acts dating from 1963 to 2012 into one Act in which each type of company will be assigned its own part and in which a number of significant reforms for the limited liability company are envisaged. It also introduces a new type of private company limited by shares which will be known as CLS as opposed to the existing Ltd. Most existing companies will, due to the major and numerous changes suggested by the Bill, incur additional time and costs to adapt their constitutions to comply with these.
A welcome change is the possibility for Irish private companies to engage in mergers and divisions similar to the provisions made for European companies under European Communities (Cross Border Mergers) Regulations 2008. Currently, Irish companies do not have this option. If a “merger” is intended, this currently requires the winding down of two existing companies and the formation of a new company.
If you need any company law assistance or have questions about the effect of this Bill, please contact us.
Companies (Amendment) Act 2009
The Companies (Amendment) Act 2009 (the 2009 Act) was signed into law on the 12th July 2009. This Act is aimed at increasing transparency of loans made by companies that are banks to their directors and persons connected with them, enhance the powers of the Director of Corporate Enforcement (DCE) and amend existing provisions relating to Irish registered non-resident companies.
The key provisions of the 2009 Act are set out below:
1. Specific right of DCE of access to information and production of books and records relating to the investigation of a company
A director has a duty under section 194 of the Companies Acts 1963 to declare any interest that he may have in contracts or proposed contracts with the company and the company is required to record all such information. The 2009 Act gives the DCE specific right of access and a power to take copies of books that record a director’s interest that he may have in contracts or proposed contracts with the company.
2. Changes regarding the DCE power of search and seizure
The 2009 Act expands the power of the DCE to enter and search premises and seize information whether in hard copy or electronic form. This power includes the seizure of information that is claimed to be legally privileged while the question of privilege is being determined by the Courts. This is in contrast to section 23 of the Companies Act 1990 that provides that a person shall not be compelled to produce documentation which would, in the Courts opinion, be protected by legal professional privilege.
The DCE has the power to remove material or electronic information from the premises for subsequent offsite storage and examination.
3. Disclosure obligations – transactions with directors
All Directors need to be aware of changes regarding loans made between the company and a director. The 2009 Act increases disclosure obligations regarding transactions between a company and its directors and applies special rules of disclosure to licensed banks.
Section 40 of the Companies Act 1990 provides for criminal penalties for breaches of Section 31 of the Companies Act 1990 which prohibits loans by a company to its directors and connected persons. As the DCE is particularly active in reviewing financial statements of companies to ensure that companies are not in breach of section 31, directors should review the company’s financial position to ensure that the company is not in breach and if it is take steps to rectify the situation. The new Act has also removed the requirement of ‘wilful’ or ‘knowing’ default on the part of an officer who authorised or permitted a transaction in contravention of section 31 in order for that officer to be guilty of an offence. The new Act imposes liability on all officers of the company who are in default where the company breaches section 31.
In the past banks were largely exempted from the obligation to disclose particulars of transactions with or for directors or persons connected with them and were only required to disclose aggregate amounts outstanding at the end of the financial year under any such arrangements. New rules were introduced in March 2009 by the Financial Regulator that required banks and building societies to disclose in their accounts particulars of such arrangements with each director. The 2009 Act now requires banks to disclose in their annual accounts the particulars of arrangements with each director and not just aggregated information.
4. Director residency requirements
Prior to the 2009 Act Section 43 of the Companies (Amendment) Act 1999 required that the company have an Irish resident director. This requirement has been amended by the 2009 Act that requires that at least one director of the company must be resident in a member state of the European Economic Area. The Act also clarifies in which circumstances a company is regarded as having a real and continuous link with one or more activities that are carried on in the State, the existence of which removes the necessity of having a resident director.