Powers

Cessation of Directors’ Powers

On the commencement of winding up of a company, it shall cease to carry out its business except insofar as may be required for its beneficial winding up.  The corporate state and powers continue until the company is dissolved.

On the appointment of a liquidator, other than a provisional liquidator, all the powers of the directors cease. In the case of a members’ voluntary winding up, the members may sanction the continuance of the powers. In the case of winding up by the court or a creditors’ voluntary winding up, the committee of inspection, if there is no such committee, the creditors, may sanction, in either case, with the approval of the liquidator, the continuance of the directors’ powers.

The continuance of the directors’ powers insofar as sanctioned, does not give precedence to any act or decision of the directors in the course of the winding up over a decision of the liquidator in the matter concerned.  No decision or act of the directors in respect of a matter within the scope of the liquidator’s statutory powers may be done without the prior consent of the liquidator.

The court may, however on the application of a person aggrieved, grant such relief as it thinks appropriate from the sanction of invalidity in the above cases if it is satisfied that the person (not being an officer of the company), acted in good faith in relation to the matter. The application must be made on notice to the liquidator and every creditor who has submitted proof of his claim and each contributory on the list of contributories.

2014 Act Reforms I

The Companies Act, 2014 harmonised many of the features of creditors’ voluntary winding up and court-supervised winding up.  The court’s supervisory role was reduced. The High Court examiner has no further role in court liquidations.  The court need not fix security for the liquidator.  All liquidators must be regulated and hold professional indemnity insurance.

The liquidator’s powers in all windings up are exercisable without court sanction, the sanction of the creditors or committees.  The exercise of liquidator’s powers is subject to the right of a specified portion of them, to apply to the court for directions. Liquidators in a winding up are to account to creditors at intervals, rather than to the court.

The court is not necessarily involved in fixing creditors’ claims or adjudicating on them.  This is a function of the liquidator.  The matter of settling the list of contributories and making calls is reserved to the liquidator in all windings up. Unless an earlier court order requires final orders, there is no requirement in a court ordered windings up or final orders to be applied for and be made.

2014 Act Reforms II

The leave of the High Court is required to commence proceedings against companies in all types of liquidation. Formerly, a court-appointed liquidator required the sanction of the court to take following steps:

• bringing, taking, defending legal proceedings;
• appointing a solicitor;
• carrying on business;
• paying any class of creditors;
• compromising claims;
• compromising calls.

The above steps may now be taken without leave of court or the committee of inspection. Notice of the exercise of the powers must be given to the creditors or to the committee of inspection within 14 days.  The above parties, the ODCE or the liquidator, may apply to the court to determine any question arising in the winding up, including those relating to the exercise of the above powers.

Liquidators may apply to the court in relation to the exercise of specified powers and to seek directions and approval.  In this way, they may protect themselves against liability in the exercise of the powers.

General Duties

A liquidator owes fiduciary duties to the company. He must not accept any gifts, remuneration, consideration or benefits from third parties such as auctioneers, solicitors, agents, etc. He must not purchase the company’s assets, either directly or indirectly.  The court may consent to any arrangement which might otherwise constitute a breach of fiduciary duties.

A liquidator must not take advantage of his position for personal gain. He is permitted remuneration as agreed or determined

A liquidator may be found personally liable for breach of his duty of care.  As with negligence generally, liability is not strict.  The duty is to act in accordance with the standards of his profession

In common with directors, liquidators owe fiduciary duties to the company.

Statutory Powers I

The powers of liquidators are codified. The purpose is to provide uniform powers to liquidators in a court winding up, a members and a creditors voluntary winding up.  In broad terms, the liquidator’s duty is to administer the assets of the company to which he or she is appointed. This includes the collection and gathering in of the company’s property, the realisation of the assets; and the distribution of such property in accordance with law.

It is the duty of a liquidator to administer the property of the company in respect of which he is appointed.  This includes the collection and gathering in of the company’s assets, their realisation and distribution in accordance with law.

Statutory Powers II

The liquidator’s powers are set out in the legislation in detail.  They include powers in relation to

• taking and defending legal proceedings,
• carrying on the company’s business and trade;
• appointing a legal practitioner;
• paying, compromising and making arrangements with creditors and persons claiming to be creditors,
• compromising claims, present and future, actual or contingent, ascertained or subsisting in a claim for damages
• compromising all questions relating to the assets or winding up of the company on such terms as may be agreed;
• ascertaining the debts and liabilities of the company;
• selling the company’s assets by public auction or private contract, with power to sell in whole or in part or in lots;
• execution of documents on behalf of the company including all deeds, receipts and bills of exchange;
• proving claims in the case of the bankruptcy of a contributory;
• obtaining credit, whether on the security of the assets of the company or otherwise;
• taking out grants of administration;
• giving security for costs in proceedings;
• appointing an agent to do business which the liquidator is unable to do or where it should be unreasonable for the liquidator to do so;
• taking into custody and control the assets of the company which the company appears entitled to;
• disposing of perishable property; and
• doing such acts as are necessary for the protection of the company.

In addition to the listed specific powers,  the liquidator has a residual power to do all such other things as may be necessary for winding up the affairs of the company and distributing its property.

Exercise of Powers I

The statutory powers conferred on a liquidator in a creditor’s voluntary winding up may not be exercised, except with the sanction of the court, during the period before the holding of the initial creditor’s meeting.  This does not apply to the powers in relation to gathering in of assets and dealing with perishables.

There are powers which allow for corporate rescue and recommencement of the business.

There are provisions for application to the court for the determination of issues in relation to the exercise of the liquidator powers is preserved.

A provisional liquidator has those powers and duties provided in the order appointing him and any subsequent court order. This follows the new approach to provisional liquidators under the Companies Act 2014 which gives them a much narrower range of powers.  This may enable the company to continue to operate until a final winding up order is made, in many cases.

Exercise of Powers II

Where a liquidator exercises any powers in respect of compromising claims of creditors, taking legal proceedings or carrying on the business of the company, it shall give notice of such exercise

• in the case of winding up by the court or creditors’ voluntary winding up, to the committee of inspection or, if none such, to all of the creditors of the company who are known to the liquidator or who have been intimated to the liquidator; and
• in the case of a members’ voluntary winding up, to the members.

This does not apply, where the amount, claim or call in respect of which the power is exercised, does not exceed €500.

Subject to the below, the liquidator shall not sell, by private contract, a non-cash asset of the requisite value to a person who is, or was, within three years prior to the date of commencement of the winding up, an officer of the company unless the liquidator has given at least 14 days’ notice of his intention to do so to all creditors of the liquidator who are known to the liquidator.

A “non-cash asset” of the “requisite value” means a non-cash asset and requisite value is 10% of the net assets. It has the same as in the case of substantial property transactions requiring members consent.

Sale to Connected Person

Company assets may not be sold to persons who are officers or are connected to officers, within the previous three years unless at least two weeks’ notice is given to the creditors.  The requirement applies to substantial property transactions.

Subject to the below exceptions, a liquidator or a  member of a committee of inspection shall not, while acting as such, either directly or indirectly, by himself or through an employer, partner, agent or employee, become the purchaser of any of the company’s assets.

Where a liquidator carries on the business of the company, he shall not purchase goods for the carrying on of such business from any person whose connection with the liquidator is such that the liquidator may obtain a portion of the profit of the transaction.

Transactions in breach of the above restrictions (non-cash asset or beneficial trading transactions), may be set aside, on the application of any creditor or contributory.

The prohibitions do not apply if, prior to the sale or as appropriate, the making of the purchase, consent is given by the committee of inspection or a majority in value of the creditors if they are known or, in the case of a members’ voluntary winding up, a majority in value and number, of the company.  The costs of obtaining the consent shall be borne by the person in whose interest the sanction is sought.

Application for Directions

Any shareholder or creditor may apply to the court in relation to the exercise of the liquidator’s functions.  This applies both to court and voluntary liquidations.  Liquidators themselves may apply to the court, for directions in relation to the conduct of the liquidation.  This may protect them from the risk of accusations and claims that their conduct is in breach of duty.

The liquidator, provisional liquidator, contributory (member), creditor or the ODCE may apply to the court, to determine any questions arising in the winding up of a company.  This includes any question in relation to the exercise or purported exercise of any powers of the liquidator.

The court, if satisfied that the determination of the question is just and beneficial, may accede wholly or partly to such application on such terms and conditions as it thinks fit.  A copy of the order is to be filed with the CRO. Failure to do so in a category 4 offence.

If a default is made by the company or directors in complying with the obligation to convening the initial creditor’s meetings and furnish a statement of affairs, the liquidator must apply to the court within 14 days for directions in relation to the remediation of the default.  In convening creditor’s meetings, the liquidator may apply for directions as to how the default is to be remedied.The liquidator shall attend the creditor’s meetings and shall report on the exercise of his powers.

Trading and Sale of Assets

The liquidator may carry on the business of the company for the purpose of the winding up. He has the power to act in the company’s name and execute deeds on its behalf.  They may appoint agents to carry on the business. The carrying on of business must be for the purpose of winding up the company.

The liquidator may sell the company’s business or undertaking as a going concern. The liquidator may borrow and commence litigation. Generally, he has broad power and discretion to do all things necessary in order to realise the company’s assets and wind up its affairs.

Business letters, invoices, etc., must state that the company is in liquidation. Similar obligations apply to company emails and its websites.

The liquidator has a statutory power to sell assets. He has a duty to obtain the best price reasonably available. He may proceed by auction or a private sale. He may transfer assets in whole or in part. He may lease, sub-lease or sell in whole or in lots.  He may do whatever is necessary in the company’s name and on its behalf, including the use of the company seal in order to give effect to the sale.

Liquidators are not personally liable for steps taken by the company in the course of liquidation unless they otherwise agree, provided that the relevant obligation is undertaken by the company.

Committee of Inspection

The creditors may appoint a committee of inspection in a court ordered winding up and in a creditors voluntary winding up. The liquidator or one tenth of the creditors may require the formation of the committee of inspection and call a meeting of creditors for this purpose, without a court application in a court ordered winding up.

The committee is to consist of up to five persons appointed by the creditors. The members may by resolution appoint up to three members. The creditors may resolve to remove the members’ appointee, in which event they may continue only if the court so orders.See the section on Liquidation procedure in relation to the committee of inspection.

The liquidator has the power to convene meetings of the creditors and contributories.  They must be convened where they pass the resolution which directs the liquidator do so or where one-tenth makes the request in the value of the contributories.

There is an obligation to call meetings of the committee of inspection on the anniversary of the commencement of winding up.  If there is none, then a meeting of the creditors must be called. The ODCE may direct the convening of meetings for this purpose.

The creditors or contributors may override the wishes of the committee of inspection in the event of conflict.

Pre-2014 Act Committee

In a court liquidation, the court could direct the liquidator to convene a meeting of creditors for the purpose of the appointment of a committee of inspection. The directions given by the committee were required to be taken into account, but are not ultimately binding.  The matters may be referred to meetings of the shareholders and creditors or to court for directions.

In the case of a voluntary liquidation, the committee of inspection’s consent was necessary to the exercise of certain powers.  Without their consent, court approval was required. The matters to which the provision applied included

• payment of creditors of a class in full;
• compromises;
• disclaimers;
• appointing a solicitor;
• carrying on business;
• taking legal action.

Summary Court Orders

A liquidator may require persons who possess them to deliver up the assets, monies, papers and records relating to the company.The court made summons persons be examined.  The court may order the arrest of persons and/ or the seizure of books, personal properties, and papers.  The powers is now available in all windings up.

There are a number of orders which may be made by the court on foot of summary procedures, which seek to assist in the discovery and the recovery of the company’s assets. The applications are made primarily by the liquidator but may also be made by creditors and shareholders.

An order may be made to recover company property that has been wrongly disposed of by directors, officers, or others. An order may be made for recovery and possession of property which is in the custody of a third party, which belongs to the company.

Officers and shareholders who are or are about to abscond, leave the country or conceal company property may be arrested and examined in relation to the company’s affairs. An order may be made to seize papers and records. An order may be granted preventing certain persons connected with the company from reducing their assets or removing them from the state.

Litigation by Liquidator

The liquidator formerly required authority to take proceedings from the court or a committee of inspection where applicable. Court authorisation remains desirable in many cases. The liquidator may give security for costs on behalf of the company, where required.

Some court applications which may be brought by the liquidator may be undertaken in a personal capacity. A prominent example is the summary application for directions or for consent in relation to particular matters. In these cases, the liquidator may have personal liability for costs.  The court may order that the liquidator’s cost be paid from the proceeds of liquidation, even if his application is unsuccessful in appropriate circumstances.

The liquidator may take action on behalf of the company, without personal liability. However, tThe court will not order that costs be paid as an expense in the liquidation unless the steps taken are reasonable.  The liquidator may make a prior application to the court for consent to take the proceedings,  which will usually protect him in terms of cost.

Tax Obligations

The liquidator must account for tax on behalf of the company.  Where the company trades, VAT will be payable on the supplies of the ongoing trade. The liquidator may be obliged to register for VAT in a personal capacity as fiduciary in some cases.

Similarly, corporation tax will arise on trading profits. The general rules in respect of losses apply. On cessation of trading, the general rules in respect of the termination of corporate trades apply.

The distribution of sums to shareholders will constitute a capital payment rather than an income payment. Capital gains incurred by the company in the winding up are taxable under special legislation, which effectively gives the Revenue priority by placing duties on the liquidator to pay that CGT due from the proceeds of the sale.

References and Sources

Primary References

Companies Act 2014 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)  Ch.25   Courtney

Keane on Company Law 5th Ed. (2016) Part VIII Hutchinson

Other Irish Sources

Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury

Introduction to Irish Company Law    4th Ed. (2015) Callanan

Bloomsbury’s Guide to the Companies Act 2015      Courtney & Ors

Company Law in Ireland 2nd Ed. (2015) Thuillier

Pre-2014 Legislation Editions

Modern Irish Company Law   2nd Ed. (2001) Ellis

Cases & Materials Company Law 2nd Ed. (1998) Forde

Company Law 4th Ed. (2008)  Forde & Kennedy

Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy

Companies Acts 1963-2012   (2012)  MacCann & Courtney

Constitutional Rights of Companies   (2007)  O’Neill

Court Applications Under the Companies Act (2013) Samad

Shorter Guides

Company Law – Nutshell 3rd Ed. (2013) McConville

Questions & Answers on Company Law (2008)        McGrath, N & Murphy

Make That Grade Irish Company Law 5th Ed. (2015) Murphy

Company Law BELR Series (2015)   O’Mahony

UK Sources

Companies Act 2006 (UK) (Legilsation.gov.uk)

Statute books Blackstone’s statutes on company law (OUP)

Gower Principles of Modern Company Law 10^th Ed. (2016) P. and S. Worthington

Company Law in Context 2^nd Ed. (2012) D Kershaw

Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam

Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington

UK Practitioners Services

Tolley’s Company Law Handbook

Gore Browne on Companies

Palmer’s Company Law