Insolvency and Winding-up Procedures
These procedures are governed by the Companies Acts 1963-2009, the Rules of the Superior Courts, Orders 74,75 (SI 15/1986) and Order 75A (SI 147/1991), and case law.
Duncan Grehan & Partners are experienced in this area of law and can provide you with advice and deal with all queries in respect of the following procedures.
1. Receivership
Receivership is a method of enforcing a security. A receiver is appointed on foot of a debenture or a charge which empowers a secured creditor (most commonly a bank) to appoint its own receiver for the purposes of taking possession, realising the assets secured by the debenture or charge and distributing the proceeds to the debenture holder subject to any other charges or priorities. Irish law provides for different types of receivership which includes a court appointed received.
However, the most common form of receivership is where a secured creditor appoints a receiver under contractual powers granted by the company in the debenture document. Where no such contractual powers are set out in the debenture the creditor can apply to the High Court for the appointment of a receiver. All the powers of the receiver and the debenture holder are contained in the debenture document, which is a contractual document, save a number of statutory provisions.
A receiver can only deal with assets which have been charged. The appointment of a receiver does not affect the status of the company as the directors continue to exercise their powers and duties regarding the other assets of the company. Receivership may be a temporary measure and it may not lead to the dissolution of the company. Once a receiver has been discharged the directors resume their normal functions in respect of all of the affairs of the company (provided no liquidator has been appointed in the interim).
2. Liquidation
The functions of a liquidator are to take possession of and realise all of the assets of the company and to distribute the proceeds to the creditors in accordance with the priorities as set out by law. The liquidator has powers to challenge certain pre-liquidation transactions and to investigate the conduct of directors and officers of the company. There are three forms of winding-up procedure available under Irish law namely (a) Member’s voluntary liquidation, (b) Creditor’s voluntary liquidation and (c) Compulsory liquidation.
(A) Member’s voluntary liquidation
The members of a solvent company wind up the company voluntarily and distribute the assets. The Directors of the company must file a sworn statutory Declaration of Solvency with the Registrar of Companies and a Special Resolution must be passed by a majority of the shareholders at an EGM to wind up the company and appoint a liquidator (certain time limits apply).
(B) Creditor’s voluntary liquidation
This type of winding up occurs where the company is insolvent and or where a Declaration of Solvency has not been sworn. This procedure also applies where a company cannot discharge its liabilities in full and it is converted from a member’s voluntary liquidation to a creditor’s voluntary winding up. The winding up commences by a resolution of the members to wind up the company voluntarily. The members must also pass a resolution at the same time to appoint a liquidator and the director’s powers cease. A creditors meeting must be held the same day or the day after the resolution was passed and it must be advertised 10 days before the meeting in two daily newspapers which are circulated in the district of the registered office of the company and all the creditors must be notified in writing of the meeting. A director of the company must chair the creditor’s meeting. After the meeting the company will be in a creditor’s voluntary liquidation and a liquidator will have been appointed.
(C) Compulsory liquidation
Pursuant to Section 213 of Companies Acts 1963, the High Court has the power to order the winding up of a company and to appoint a liquidator, where a company is unable to pay its debts as they fall due or where it is just and equitable to do so. Creditors, members or the company itself may petition to the court to order the winding up of the company. On hearing a petition the court may dismiss, adjourn or make a winding up order. A winding up order places the company in liquidation, the director powers cease and an official liquidator is appointed who becomes its sole officer and is an officer of the court.
3. Examination
This procedure is to aid the rescue of a company in financial difficulty. A petition to the High Court may be made to appoint an examiner by the company, a director, a creditor or a shareholder (who represents 10% or more of the paid-up capital of the company). The court must be satisfied that there is a reasonable prospect of survival of the company in order to appoint an examiner. Examination provides the company for a period of 70-100 days protection of the court and prevents creditors pursuing claims and enforcing securities. During this period the company continues to trade and the directors remain in control of the operations of the company. The duty of an examiner is to formulate proposals or a scheme of arrangement between the company, its members and its creditors. If the scheme is confirmed by the court it becomes binding on the company, its members and it creditors. If the scheme is not confirmed by the court, the protection of the court is revoked and receivership or liquidation is likely to follow.
