Court Initiation

Criteria for Winding up I

The petition is vouched by affidavit and is based on certain grounds set out in the legislation.

A court may order a company to be wound up:

  • if the company has by special resolution resolved that it be wound up by the court;
  • it does not commence business within a year of its incorporation or it suspends business for 12 continuous months;
  • all members of the company are deceased or no longer exist;
  • the company is unable to pay its debts;
  • it is of the opinion that it is just and equitable that the company should be wound up;
  • it is satisfied that the affairs of the company are being conducted or the powers of the directors are being exercised in a manner oppressive to any member or in disregard of his interest as a member and despite the existence of an alternative remedy, winding up is justified in the general circumstances of the case;
  • the court is satisfied on a petition by the ODCE that it is in the public interest that the company be wound up.

Criteria for Winding Up II

A company is deemed to be unable to pay its debts if

  • a creditor, whether the original creditor or by assignment, to whom the company is indebted for more than €10,000, has served a demand at the registered office requiring the sum to be so paid and the company has failed to or neglected to pay the sum for 21 days. Equivalent provisions apply where two or more creditors, demand a sum more than €20,000;
  • if execution or another process on a judgment, decree or other order of the court is returned unsatisfied in whole or in part;
  • if it is proved to the satisfaction of the court that the company is unable to pay its debts.  In determining whether a company is unable to pay its debts, the court shall take into account, the contingent and prospective liabilities of the company.

Petitioners I

An application to the court for winding up is made by a petition presented by the company, a creditor or creditors (including contingent and prospective creditors) or any contributory (member or members).

The court shall not give a hearing to a winding-up presented by a contingent or prospective creditor until such security for costs has been given as the court thinks reasonable and until a prima facie case for winding up has been established to the satisfaction of the court.

The 2014 Act confirms that persons who are entitled to bring proceedings for oppression may petition for winding up on the grounds that the company’s affairs are being conducted and the powers of the directors are being exercised in an oppressive manner to any member or in disregard of his interests as a member.

A contributory/ member is not entitled to present a petition for winding-up unless the shares in respect of which he is a contributory, or some of them, were either originally allotted to the person or have been held by him and registered in his name, for at least six months in the prior 18 months or have come to him on the death of a former holder.


Petitioners II

The ODCE may present a petition for winding up on the statutory grounds set out above. It is a potential petitioner for the winding up of a company, where the public interest so requires.  It is a specific ground of winding up that the court is satisfied on the petition of the ODCE, that it is in the public interest so to do.  It is provided that the court may order that a company be wound up as a creditors voluntary winding up.

A company may be wound up if the court is satisfied on a petition of the Director of Corporate Enforcement, on the basis that it is in the public interest to do so.

The threat of a petition by a creditor may be sufficient to ensure the payment of a debt. The creditor must be prepared to spend monies on the cost of the petition and on liquidator’s fees in order to pursue the matter further, with the possibility only of reimbursement, from the proceeds of liquidation.

The creditor who petitions for winding up takes the risk that if there are insufficient assets, he will be paid nothing or, at best a proportionate part of his debt. This will be determined by net unsecured assets available, after the costs of the liquidation, and payment of preferential creditors. The unsecured creditors will share rateably any such proceeds are available.


Hearing of Petition I

A winding-up by the court is commenced by the presentation of a petition for winding-up of the company.  Where a resolution has already been passed for a voluntary winding up, the winding up is deemed to commence at the time of the passing of that resolution.  In the absence of proof of fraud or mistake, all proceedings taken in the voluntary winding up are deemed to be validly undertaken.

On the hearing a petition for winding up, the court may dismiss the petition, adjourn it conditionally or unconditionally, or make such interim order, as it thinks fit.  It shall not refuse a winding-up on the ground only that the assets of the company have been mortgaged for an amount in excess of their value or that the company has no assets.

The court, in all matters relating to winding up, shall have regard to the wishes of the creditors or contributories (members) as proved by sufficient evidence. Regard shall be had to the value of each creditor’s debt. In the case of contributories, regard is to be had to the number of votes conferred by each contributory by the Act or the company’s constitution.For the purpose of ascertaining their wishes, the court may direct meetings of the creditors and contributories to be held and conducted as the court directs. It may appoint a person to be the chairman.

Where the company has obligations to the National Asset Management Agency, the court must be satisfied that the petitioner has served a copy of the petition on the Agency and that the Agency has been heard in relation to the matter.


Hearing of Petition II

On the making of an order for winding up, based on the special resolution of the company, the non-commencement of business, all members being deceased, the just and equitable ground or the oppression ground, the court may order that the company be wound up as if it were a members’ voluntary winding up.

Where the petitioner does not proceed with his petition for winding up, the court may substitute another person as petitioner who would have a right to petition and wishes to proceed with the petition.

On the making of a winding-up order, such officer of the court as may be prescribed or directed shall cause the CRO to be furnished with particulars of the order.  A copy of the order shall be served by the petitioner or such other person as the court directs, upon the company at its registered office or at its place of business or last known place of business.  On the appointment of a liquidator, other than a provisional liquidator, the officer of the court shall cause the CRO to be furnished with particulars of the order.


Preliminary Orders I

The court may appoint a provisional liquidator at any time after presentation of a petition for winding up and before the appointment of a liquidator. A provisional liquidator may be appointed where there is a risk that the assets will be dissipated. A provisional liquidator is appointed in a short form procedure. The application for the appointment of a provisional liquidator may be made after the petition has commenced.

There must be sufficient grounds to demonstrate the necessity for the appointment of a provisional liquidator. The purpose is to assume control of and protect the company’s assets, pending the appointment of a liquidator. His powers will usually be limited to collecting and in protecting the assets.

Under the 2014 Act, provisional liquidators no longer have the general powers of a liquidator.  They are limited to the powers conferred by the court. The court may appoint a provisional liquidator, with the full powers of an ordinary liquidator order or may grant more limited powers.  In effect, a provisional liquidator need not be as disruptive as had been the case under the earlier legislation.  The court may divest officers of the company of their powers on appointment of the provisional liquidator.


Preliminary Orders II

At any time after the presentation of a petition and before a winding-up order has been made, the company, a creditor or any member may, where an action or proceeding against the company is pending in the High Court (or on appeal), apply to the court for a stay of proceedings or to restrain further proceedings. The court to which the application is made, may stay and restrain such proceedings, on such terms as it thinks fit.

The court may appoint a liquidator or liquidators for the purpose of conducting the proceedings in the winding up a company.   An order for winding up shall operate in favour of all creditors and all members as if made on their joint petition.

The voluntary winding up of a company shall not bar the right of a creditor or contributory to have it wound up by the court.  However, the court must be satisfied that the rights of the contributories would be prejudiced in a voluntary winding up.


Basis for Petition

A petition for winding up is usually based on the company’s inability to pay. A creditor may be owed a debt or other monetary claim under a contract or other legal basis.  He may be owed a contingent or future debt. He may have a claim for an unascertained sum by way of damages. In some cases, a preliminary application may be made to prove that there is sufficient claim, in order to allow a petition to proceed.

A creditor need not obtain a judgement in order to proceed with a petition for winding up. As in bankruptcy, there is a procedure whereby an unpaid debt, to which there is no serious defence may be made the basis of a petition. The procedure in a corporate liquidation is simpler than that in bankruptcy. There is no equivalent of a bankruptcy summons, which must issue from Court offices. Unlike the case with a bankruptcy summons, there is no prescribed form.

A statutory demand for payment of a liquidated sum by letter may be served, where a sum of €10,000 is owed. If a written demand is served and the sum is not paid within 21 days, the company is deemed insolvent for the purposes of presentation of a petition. The petition may not be presented, until 21 days after the demand. The debt must be clearly demanded. It must be immediately due and be a liquidated (definite) sum.

A company may be proved insolvent by other evidence that it is unable to pay its debts as they fall due. Insolvency may also be proved otherwise, such as by reference to the company’s balance sheet assets and liabilities. In this case, it will be necessary to look at the balance sheet and update as to the value of the company’s net assets.

An alternative basis for a petition is available where a court order/ judgement has been obtained, and the sheriff or county registrar has returned that there are “no goods” or “insufficient goods” available for execution of the judgment.


Opposing a Petition I

Once a petition is issued, certain advertisements must be published. The company itself or certain other parties may apply to restrain the petition. In particular, they may seek to restrain the publication of an advertisement. They may seek to restrain the creditor from presenting the complete petition, have it struck out or stayed. This will commonly, be based on the alleged debt, being contested in good faith.

Where there is a good faith dispute on a reasonable basis in relation to the debt, the court may decline a petition. Where there is a dispute, but an amount in excess of the threshold for a petition is not disputed, then the petition may proceed. Where the debt is not disputed, but there is a bona fide counterclaim, the petition may be stayed or struck out.

The court retains discretion to refuse a petition for winding up, even if the grounds for the petition are made out. The discretion is not absolute. It must be exercised in an objective, justifiable and fair manner.

If the majority of creditors oppose the winding up on justifiable grounds, the court may refuse the petition. It may form the view that it is better for the company to continue to trade and pay its debts than to initiate a winding up and liquidation.


Opposing a Petition II

The creditor’s opposition must be undertaken in good faith and have a reasonable basis. Where the creditors opposing the petition are owed the majority of the company’s liabilities, their views will be given greater weight. Less weight will be given to secured creditors, given that their interests may conflict with that of the general creditors.

Where a petition is presented for an irrelevant purpose or to achieve some extraneous purpose, other than the bona fide winding up of the company and the distribution of its assets to its creditors, it may be enjoined as an abuse of process.

A petition may be made in respect of a company in voluntary liquidation, on the application of shareholders or creditors. The application to the court must show that the conduct of the liquidation is deficient or that another good reason exists to replace the liquidator and place the liquidation under the auspices of the court. The court will give greater weight where a majority of the creditor’s favour court winding up.


Powers Outside Liquidation I

 

Certain liquidation powers may be exercised, notwithstanding that a company is not being wound up, where execution or other enforcement of a court order cannot be undertaken. It must be proved to the satisfaction of the court that the company is unable to pay its debts, taking into account contingent and prospective liabilities. The reason or principal reason for not being wound up must be the insufficiency of assets.

The person who would be entitled to apply for an order or judgment (in particular a creditor or member) may make an application. It is a condition that that execution/ enforcement of a judgment or order against the company has been returned unsatisfied, in whole or in part.

A person having a claim against the company may apply to the court for such order as is appropriate by way of enforcement of any right which the court on the application finds to arise on that person’s part. The orders that may be made on the application include, in particular, orders that could have been made against directors, officers, associated companies and others in a winding up. The date of the judgment or order is deemed to be the date of the winding up for the below provisions.


Powers Outside Liquidation II

The ODCE may apply to the court for an order under any of the below provisions. Any person in the above category may apply for payment of or from monies recovered or available following a successful application by the ODCE.  The application must be made within 30 days of the date of the judgment in favour of the ODCE.

The powers that may be exercised in the application are the following:

  • the requirement by a related company to contribute;
  • power to return assets which have been transferred improperly;
  • personal liability of officers of the company where adequate accounting records have not been kept;
  • civil liability for fraudulent trading;
  • powers to assess damages against directors of a company and holding company;
  • power to summons persons for examination;
  • order for arrest and seizure;
  • order for payment or delivery of any property against the person examined;
  • inspection of books by creditors or members;
  • countering fraud by officers;
  • order for inspection of books of the company in liquidation;
  • where the company has failed to keep proper accounts such as to commit a category 1 offence.


Pre- 2014 Act Procedure I

A court directed winding up took place on foot of a petition by a creditor or others. A creditors’ voluntary winding up could be converted into an official winding up by the court. The petition for winding up might be taken by the company itself, a creditor, shareholders, the ODCE or the Attorney General.

The directors of a company with a share capital, could not present a petition without the authority of the shareholders. A shareholder who had held shares for at least the previous 18 months could present a petition.

The grounds for winding up by the court were as follows:

  • special resolution by the company;
  • oppression;
  • it is just and equitable;
  • the company unable to pay its debts;
  • less than the minimum of shareholders;
  • the company has not commenced business or suspends business for a year.

Pre-2014 Act Procedure II

On the hearing of a petition, the court could first appoint a provisional liquidator as an interim measure. It could later appoint that liquidator as “full” liquidator. More commonly, a liquidator is appointed on foot of the petition, without the appointment of a provisional liquidator.

Any creditor or shareholder may apply to the court to stay legal proceedings. Upon appointment of a liquidator, notice of the winding up was required to be filed in the CRO. The order was published in the official gazette.

An official court-based liquidation dated back (related back) to the date of presentation of the petition. This creates an immediate moratorium on enforcement and certain asset transfers.


References and Sources

Primary References

Companies Act 2014 S.568- S.577 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)  Ch.24   Courtney

Keane on Company Law 5th Ed. (2016) Ch.36 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 10th Ed. (2016) P. and S. Worthington

Company Law in Context 2nd 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