In Ireland, there are two forms of liquidation: voluntary and compulsory. There are also two forms of voluntary liquidation: members’ voluntary liquidation and creditors’ voluntary liquidation.
We will now examine the key concepts and features of each form of liquidation.
In certain circumstances, the court can order the winding up of a company. This usually happens when it is just and equitable that the company be wound up or when a company is unable to pay its debts as they fall due.
A petition to the court for a winding-up order may be presented by one or more of the following:-
1) One or more creditors with undisputed debts;
2) The company itself, if authorised by a special resolution of members. The grounds on which a company can petition for its own winding up are set out in s231(c)(f) of the Companies Act 1963, however, this is does not happen frequently as members of most companies prefer to resolve in favour of a members’ or creditors’ voluntary winding up;
3) A member of the company (subject to certain conditions).
The court may dismiss a petition, adjourn it or make a winding-up order. If a winding-up order is granted, the company is placed into liquidation and a liquidator is appointed. The liquidator is an officer of the court and is called an ‘Official Liquidator’.
Creditors’ Voluntary Liquidation
The directors of an insolvent company have a duty to take the required steps to commence the winding up of an insolvent company. The steps include convening a meeting of the members of a company and a meeting of creditors of the company. The process begins once the directors make a decision at an initial meeting of directors to wind up the company by reason of its liabilities. A general meeting is convened and it is the shareholders’ ordinary resolution at the general meeting that places the company into liquidation. The liquidator is also appointed by way of a shareholders’ resolution.
A creditors’ meeting is held on the day of the passing of the resolution or the day after. At the meeting, a ‘Statement of Affairs’ is presented to all creditors in attendance. Where a liquidator has been appointed by the members, the liquidator must present his report to the creditors and advise as to whether or not he has exercised any powers since his appointment. The creditors either confirm the appointment of the liquidator or elect their own nominee as liquidator. If the creditors wish to appoint their own liquidator, they can do so by a resolution of the majority, in value, of the creditors present personally or by proxy. A Committee of Inspection may also be appointed.
The company will be in creditors’ voluntary liquidation at the end of the meeting and going forward the liquidator reports to the creditors.
Members’ Voluntary Liquidation
If a company is solvent and the members decide to distribute a company’s assets and wind up the company voluntarily, the members can do so by way of a members’ voluntary liquidation.
This form of liquidation may only be availed of where a company is solvent and can pay its debts in full. The directors must make a sworn declaration that the company will be able to pay its debts in full within a period not exceeding 12 months from the commencement of the liquidation and the shareholders must pass a special resolution to wind up the company. The liquidator in this case reports to the members of the company.
We have briefly examined the different forms of formal liquidation in Ireland. Other measures in Ireland which can fall under insolvency include examinership and receivership.
We will examine strike offs and the restoration of companies that have been struck off or liquidated in future blog posts.