Is your Business/Company in Financial Difficulty?

Do you wish to discuss your options?

Running a company today can be volatile and it is likely that a number of companies will run into financial difficulty at some stage. When a business experiences financial difficulties, inevitably there is uncertainty and anxiety for those involved. We are fully aware of the problems facing many businesses especially in times of economic slowdown and we offer much more than simply insolvency advice.

Directors must make an early decision on whether the business should cease to trade. Failure to do so may result in the directors having to contribute personally to the company's losses. Under Irish law, if a company is trading insolvent, a director may be liable for wrongful trading. If the director knew or should have known that the company could not avoid becoming insolvent but still continues to trade then he or she must cease to trade immediately and take steps to liquidate the company.

The director of a company which is facing financial difficulty should ensure that there is a reasonable prospect that the company will avoid insolvent liquidation before being party to any decision to trade on.

There are many options open to Companies:-

Examinership

Where a company is, or is likely to be, unable to pay its debts and has not been wound up, a petition may be presented to the High Court seeking the protection of the court and the appointment of an examiner. In making an order to appoint an examiner, the court must be satisfied that there is a reasonable prospect of the survival of the company and the whole or any part of its undertaking as a going concern.

For a period of seventy days from the date of the petition, the creditors of the company are prevented from taking action to force their securities. During the period of protection, no winding-up proceedings may be commenced, no receiver can be appointed, no attachment or execution against assets or no attempt to repossess goods under a hire purchase or retention of title agreement will be allowed.

The principal duty of an examiner is to prepare a report for the court on the viability of the company.  As part of this report, the examiner formulates proposals for a compromise or scheme of arrangement in respect of the company. The proposals are then put to the shareholders and to the different creditors and shall be deemed to be accepted by the creditors if passed by a majority.

Once the examiners proposals have been voted upon, the examiner must again report to the court with the outcome. At this hearing, any creditor or member whose claim or interest would be impaired if the proposals were implemented may appear and be heard. The court has discretion to confirm, confirm subject to modifications or refuse to confirm the proposals.

If the court decided to confirm the proposals, it can fix a date for the implementation of the proposals, which will not be later than twenty-one days from the date of its confirmation. If the proposals are not confirmed by the court, then it can make such order as it deems fit which is likely to be an order for the winding up of the company.

Section 201 Companies Act 1963
Scheme of Arrangement

Section 201 Companies Act, 1963 provides that where a compromise or arrangement  is proposed between a company and its creditors, the court may, on the application of the company, or of any creditor or member of the company order a meeting of the creditors or members, as the case maybe, to be summoned in such manner as the court directs.

If the majority of the creditors or members representing at least three –quarters in value of that class, vote in favor of the resolution agreeing to any compromise arrangement, the compromise shall, if sanctioned by the court, be binding on all creditors.

Winding up

There are three forms of winding-up procedures available under Irish Law. These are as follows:-

1. Members voluntary Winding up

A member’s voluntary winding up is a form of winding up of a solvent company. The members of the company pass a special resolution that the company be wound up. To avail of this procedure, the directors of the company must meet and make a statutory declaration that they have made a full enquiry into the affairs of the company and that, having done so, they have formed the opinion that the company will be able to pay its debts in full within a period not exceeding twelve months from the commencement of the winding up.

The statutory declaration must embody a statement of the company’s assets and liabilities as at the latest practicable date before the making of the declaration, and in any event at a date not later than three months before the making of the declaration. The report must be accompanied by a report made by an independent person (usually the company’s auditor).

Directors must be advised that if it is subsequently proved that the company is unable to pay its debts within the period specified in the declaration of solvency, a court may declare that any director who is party to the declaration without having reasonable grounds for the opinion that I would be able to pay its debts in full within the twelve-month period specified, will be liable, without any limitation of liability, for all or any of the debts or the liabilities of the company.

The liquidators function is to wind up the affairs and distribute the assets of the company. If at any time the liquidator forms an opinion that, contrary to the director’s declaration, the company is unable to pay its debts in full, he must publicly advertise and call meeting of the company’s creditors. The liquidation will no longer be a members voluntary winding up, but will proceed as a creditors voluntary winding up. It would be in these circumstances that the questions of director’s personal liability would arise.

2. Creditors Voluntary Winding up

This procedure is used by companies that are insolvent. It is also the procedure which applies where a member’s voluntary winding up is converted to a creditor’s voluntary winding up, where the company could not discharge its liabilities in full.

3. Compulsory Winding up

Under s 213 Companies Act, 1963, the High Court has power to order the winding up a company and appoint a liquidator. The parties who may petition the Court for such an order include creditors, members or the company itself. The two most common grounds upon which a petition may be presented are:

(a) That a company is unable to pay its debts as they fall due
(b) That it is just and equitable that the company should be wound up

On hearing the petition, the court may dismiss it, adjourn it or make a winding- up order. This order places the company into liquidation and appoints the official liquidator. The obligations of the liquidator is to take control of all the property and assets of the company, to realise the assets in such a way as to discharge all the company’s liabilities and to pay all the creditors, if possible. If it is not possible to pay all the creditors, there are statutory provisions setting out the priorities to be applied.

If you require advice, on any issues mentioned above, or further information please contact us for a personal professional efficient service.