Amendments to the Companies Act in relation to Notification Requirements for Employees and provisions designed to increase the pool of assets available to creditors in liquidation

Introduction

On 9 May 2024, the Oireachtas enacted the Employment (Collective Redundancies and Miscellaneous Provisions) and Companies (Amendment) Act 2024 (“the Act”). Part 4 of this Act amends certain provisions of the 2014 Companies Act.

Notification Obligations

The Act inserts new subsections under sections 571, 573, and 594 of the Act of 2014 for the notification of relevant parties. This means that:

• When a winding up petition is presented under section 571(1), the company’s directors now have to notify all employees of the company or their representatives of this at the time that petition is presented or as soon as reasonably practicable after such presentation. Whether or not the new obligation to notify employees under Section 571 is followed or not will be considered in deciding whether granting a winding up order is just and equitable
• When a provisional liquidator is appointed under section 573(1), the provisional liquidator must notify all employees or their representatives of his/her appointment, of the winding up process insofar as it relates to employees and any other relevant matters arising.
• When a company’s statement of affairs is served on the liquidator or provisional liquidator, the liquidator must notify all employees or their representatives either electronically or by post. 

Asset Swelling Amendments

The Act also deals with some areas where the court determines the various liabilities of parties potentially responsible for liquidation.  New text is inserted under sections 599, 604, and 610 to this end. As per the amendments:

• Regarding the factors to be considered in making a contribution order against a related company under section 599 (2) , the Court is to additionally have regard to the extent to which the circumstances that gave rise to the winding up can be attributed to the acts or omissions of the related company and any other matters they deem appropriate.
• Some discretion is now given to the Court to extend the 6 month and 2 year time limits for unfair preference under section 604, with the result that the relevant act can have occurred within the relevant time limit or such longer period as the court considers just and equitable having regard to the circumstances of the act concerned.
• The scope of section 608 has been widened slightly by clarifying that the exclusion of a payment to which the unfair preference provision applies only excludes a payment made in the ordinary course of business, with the result that other payments are in scope in respect of the Court’s power to return payments improperly made.
• The test for reckless trading under section 610 is now an objective test and the defence of acting honestly and responsibly has been replaced by an analysis as to whether the officer took, from the time he or she ought to have known that his/her actions or those of the company would be likely to cause loss to creditors, such steps as were reasonably practicable with a view to minimising such loss as he or she ought to have taken.

Comment

The notification requirements will increase the administrative burden on liquidators but the amendments appear to be reasonable given what is at stake for employees.  In the past, employees have sometimes been completely blindsided by the demise of their employer and the instigation of a winding up procedure.

It will be interesting to see how the Courts interpret the changes to the reckless trading provision in particular. On balance, it would appear to be more likely that an increased number of directors will fall foul of this revised provision.  

For more information, please feel free to contact Partner and Head of Restructuring & Insolvency John Fitzgerald, or your usual contact in the firm.