Background Information on Official Liquidations
Over 90% of insolvent Liquidations conducted in the Republic of Ireland are carried out as Creditors Voluntary Liquidations. Under this type of Liquidation, the Liquidator is obliged to convene annual meetings of shareholders and creditors to outline the progress which he has made in the Liquidation.
The other form of winding up an insolvent company in the Republic of Ireland is a winding up by Order of the High Court, otherwise known as an Official Liquidation. In an Official Liquidation, a Liquidator is not obliged to hold annual meetings of the shareholders and creditors to update them on the progress on the Liquidation. Instead, the Liquidator submits reports directly to the High Court.
The lack of formal reporting to shareholders and creditors of Official Liquidations can create an "information vacuum" which can be frustrating for the parties involved. The lack of information can be particularly frustrating for shareholders, as the Liquidator's primary duty in an Official Liquidation is towards the creditors of the company and not to its shareholders. The Liquidator will only have a duty to shareholders if it becomes clear that the company becomes solvent i.e. that asset realisations are sufficient enough to pay the expenses of the Liquidation and discharge all creditors in full. However, such events are a very rare occurrence.
In order to keep shareholders and creditors of large Official Liquidations updated, we have decided to maintain separate web pages for each Liquidation, and update them with significant developments as and when they happen.
Duties of the Liquidator in an Official Liquidation
The duties of the Liquidator in an Official Liquidation are not much different from that of a Liquidator in a creditors voluntary Liquidation. The main duties of a Liquidator are to:
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Determine the assets and liabilities of the company
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Determine the reasons for the company's collapse
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Investigate unusual transactions
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Realise the assets of the company
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Submit a Report to the Office of the Director of Corporate Enforcement regarding the directors' stewardship of the company
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If appropriate, pay dividends to preferential creditors and unsecured creditors
Liquidators Reports to the Office of the Director of Corporate Enforcement
A Liquidator is obliged, within 6 months from the date of his appointment, to submit a Report to the Office of the Director of Corporate Enforcement ("ODCE"). The Report is submitted on a prescribed form, and is known as a Section 56 Report (after Section 56 of the Company Law Enforcement Act 2001). One of the purposes of the Section 56 Report is to provide ODCE with sufficient information to enable them to determine if they should relieve a Liquidator from proceeding with a Section 150 Application to the High Court.
A Section 150 Application (so named after Section 150 of the 1990 Companies Act) is designed to provide the High Court with an opportunity to determine if the directors of a company acted "honestly and responsibly".
In the Section 56 Report, the Liquidator is required to identify every person who appears to have been a director of the company at the date of commencement of the winding up, or at any time in the 12 months prior to the date of commencement of the winding up.
If the Liquidator is not relieved by ODCE from proceeding with a Section 150 Application, then a Liquidator is obliged to take such an Application. The taking of such an Application does not necessarily mean that the directors did not act "honestly and responsibly". Indeed, in many cases directors successfully demonstrate to the High Court that they did act "honestly and responsibly".
The Section 150 Application itself is brought by an originating notice of motion which is grounded upon the Affidavit of the Liquidator. The Affidavit grounding the application should set out all the facts that the Liquidator considers should be brought to the attention of the Court for the purpose of determining:
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Whether each of the directors has acted honestly in relation to the conduct of the affairs of the company
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Whether each of the directors has acted responsibly in relation to the conduct of the affairs of the company
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Whether there is any other reason for which it would be just and equitable to restrict any of the directors.
The directors are provided with an opportunity to submit replying Affidavits. When all Affidavits are submitted, a hearing date is fixed, and the High Court reviews the Affidavits submitted, and makes its determination as to whether each of the directors acted "honestly and responsibly".
If the High Court makes a Judgement that a director did not act "honestly and responsibly" then that director will be restricted from acting as a director of any other Irish registered company. What a restriction order means is that the individual cannot be a director unless the company of which he is a director of has paid up share capital of €63,487.
It should be noted that if a Liquidator brings a Section 150 Application to the High Court that this does not necessarily mean that he is of the view that the directors did not act "honestly and responsibly". The Liquidator's function is to present the facts to the High Court so that it will be in a position to evaluate the directors' conduct.
[Note: Further information on how ODCE deals with such Reports may be obtained from their website: www.odce.ie]
Status of Creditors Claims
As part of a Liquidator's investigations into the collapse of the company, he will write to all known creditors requesting them to submit details of their claims against the company. However, he will not formally agree the claims of creditors until it is clear that there is a prospect of a dividend being paid to that class of creditor. In practice, it may take a Liquidator many months (if not years) before he is in a position to determine if a dividend will be payable or not.
For further information please contact Jim Stafford or Tom Murray on 01 661 4066 or stafford@liquidation.ie or murray@liquidation.ie