Directors - Is it time to wind up?

While the economy continues to look positive on paper, the underlying issues stemming from recent inflation and ever increasing overheads continue to affect businesses. Against this backdrop and a year on from the commencement of the European Union (Preventive Restructuring) Regulations 2022 (SI 380/2022) (“the 2022 Regulations”) on 29 July 2022, it seems auspicious to remind directors of their duties to wind up a company in a timely manner or simply exercise good corporate governance and wind up companies that are no longer operational. 

There are a number of options available to directors who, cognisant of their duty to act honestly and responsibly in relation to the conduct of the affairs of the company¹, may have a company removed from the Register. The basis for the removal will depend on a variety of circumstances which we have given an overview of below. 

A voluntary strike off of the company 

Where a company has never traded or has ceased trading, subject to the following conditions, it may apply to be removed from the Register where:

(a) The assets and liabilities of the company do not exceed €150,
(b) The company is not a party to ongoing or pending litigation,
(c) The Revenue Commissioner has no objection to the application, and 
(d) All the company’s filings are up to date. 

The process typically takes 2 – 4 months requiring the passing of resolutions, the publication of a notice in a daily newspaper and the electronic filing of the application. 

This process will suit a company which has served its purpose, usually as part of a larger group of companies and represents an efficient and cost effective way to tidy up dormant companies who, irrespective of their non-trading status still have annual filing obligations. 

Members’ voluntary liquidation 

Where a company is dormant, for whatever reason, but is crucially solvent, the prudent course of action is to voluntarily wind the company up, not only to avoid financial or operational drains on a group, but also to limit the exposure of the directors in respect of that company into the future. 

The members’ voluntary liquidation (“MVL”) process² is relatively straightforward but requires the directors to swear a declaration that the company is solvent and would be in a position to discharge its debts within a maximum period of 12 months starting from the date of commencement of the liquidation. This is an onerous declaration and should only be provided following receipt of careful advice.  A Court can impose personal liability on directors for all or part of the liabilities of a company where a director does not have reasonable grounds for the opinion in the declaration.  Thereafter, a meeting of the members of the company is called, notice of which is published in a daily newspaper in advance and the necessary resolutions are passed appointing a liquidator to the company. MVLs typically take 6-9 months but can take up to one year. 

Creditors’ voluntary liquidation 

A creditors’ voluntary liquidation (“CVL”)³ is the liquidation of a company which cannot pay its debts as they fall due. This type of liquidation will usually be preceded by a period of considerable anxiety around the performance of the company but the sooner it is commenced, the greater protection a director has in demonstrating that they acted honestly and responsibly as well as in the best interests of the creditors. 

The process is commenced by the calling of a meeting of the members of the company and immediately thereafter, a meeting of the creditors of the company to appoint a liquidator. Notice of the meeting of the creditors must be published in two daily newspapers and at the meeting, the chairman (usually a director of the company) will deliver a pre-prepared statement outlining the circumstances which gave rise to the company’s demise. Once appointed, the liquidator will take over the assets and liabilities of the company and manage the orderly winding up of the company. 

Court liquidation of a company 

In certain circumstances, it is not possible for the directors or members to pass the necessary resolutions for the appointment of a liquidator and so, a petition will have to be presented to the High Court seeking an order for the appointment of a liquidator⁴. This process is usually contentious but is absolutely necessary to limit a director’s exposure to restriction, disqualification or even personal responsibility for the liabilities of an insolvent company which continues to trade and expose creditors or the public. 

How can we help? 

The Courts have provided numerous reminders, one of the more recent being Mr Justice Quinn in Re Alvonway Investments (in Receivership & in liquidation)⁵ wherein Mr Quinn commented that ignorance of circumstances will be no defence to restriction or disqualification proceedings. Furthermore, Section 224A of the Companies Act 2014⁶ which incorporated the 2022 Regulations into domestic legislation, has imposed a statutory obligation on a director of a company who believes a company may be unable to pay its debts, to have specific regard to 

(a) The interests of creditors,
(b) The need to take steps to avoid insolvency, and 
(c) The need to avoid deliberate or grossly negligent conduct that threatens the viability of the business of the company. 

Therefore, if you are an active, passive or non-executive director of a company that is no longer operational or may be insolvent, please feel free to contact Partner and Head of Restructing and Insolvency John Fitzgerald or your usual ByrneWallace LLP contact to discuss your options.