Surplus and Shortfall
If there is a surplus on winding up after payment of creditors, which should be the case in a members’ voluntary winding up, it is divided amongst the shareholders in accordance with their respective rights. Where there is a single class of ordinary shareholders, it will be shared relatively amongst them. Apart from this, the nature of the capital and shareholding rights will determine entitlement to the surplus if any.
If there is a deficit, as will usually be the case in a court ordered or creditors’ voluntary winding up, the rules on priority determine entitlement to the available assets and funds. The expenses of liquidation have priority. Secured creditors are entitled to the have exclusive recourse to the assets secured to them. Certain creditors are deemed preferential.
Finally, ordinary unsecured creditors rank last. This will usually include most creditors. Where there are insufficient funds to pay any of these classes, all creditors. etc. are treated equally so that their claims abate rateably.
Fixing time to Prove
The liquidator requests proof of debts. In a court liquidation, the court may direct an advertisement requesting creditors to submit claims. The liquidator decides whether to allow a claim. He may require further proof by affidavit. Where claims are not for a fixed debt, the liability and amount may need to be determined by the court.
The liquidator may fix a time within which creditors are to prove their debts or claims or be excluded from the benefit of a distribution of the proceeds of the company’s assets. Debts or claims proved after the cut-off time are excluded from the distribution.
The time fixed must be notified in writing to the creditors. It shall not be fixed earlier than 28 days after the date on which the creditors are notified of the fixing of the time. The court may on the application of a creditor, made on notice to the liquidator, extend the time within which he may prove his or her debt or claim.
Proof of Debts I
The procedures and rules for claiming debts in a company liquidation are broadly similar to those in a bankruptcy. However, there are some additional rules arising from the nature of companies.
Debts owed to shareholders in their capacity as such are subordinated to those owed to external creditors. This would, for example, cover dividends declared, but not yet paid. Bona-fide debts arising, independent of the member’s status as a shareholder, such as for salary due, which are not dividends in substance, enjoy the same status as debts owed to external unsecured creditors.
The is a prescribed procedure for proving debts. The proof of debt in a voluntary liquidation may be permitted to be made informally. In a court liquidation, more formal particulars of the claim are required. The liquidator may require the debt be proved by affidavit. It must substantiate the debt and specify whether there is any security.
Proof of Debts II
The liquidator will publish times for the filing of proof of debts He will generally give notice to every creditor in the company’s statement of affairs, who has not yet proved his debt. In the case of a court liquidation, the court may specify the time limits for proof.
Late proof may be allowed but payment may be against a later distribution only, if available.
Where a company is being wound up, and about to be dissolved, the liquidator shall, lodge in an account prescribed by the Minister of any unclaimed dividends admissible to proof and unapplied. An application to court may be made by a person claiming an entitlement to any dividend or payment out of the lodgment.
If the lodgment is unclaimed, after seven years, the amount remaining unclaimed is paid to the Exchequer. If the sum is validly claimed, the Minister for Finance shall issue such sum accordingly.
Admission of Claims I
The liquidator decides which debts are allowed or are not allowed. He must act in accordance with legal principles of liability.
Formerly, in a court-ordered liquidation, the liquidator filed the admitted debts with the High Court Examiner’s office. The Examiner, in a court liquidation, could require further proof. The result of the adjudication is set out in a certificate by the Examiner.
Debts of unsecured creditors are paid pari passu. They may be paid proportionately if there are any funds available to pay it.
Under the Companies Act, 2014 the liquidator has the power to adjust the rights of contributories on completion of the winding up process. This power is transferred from the court, which exercised it under the earlier legislation.
Admission of Claims II
Creditors whose debts are not accepted must be notified and they must be given the opportunity to furnish further evidence. Creditors may have to attend the liquidator to prove their debts. They may be allowed the costs of doing so.
Creditors who do not accept the ultimate adjudication may appeal to the court. The court may determine the company’s liability for the debt.
Non-EU tax debts are not admissible. This position follows from older common law principles that countries do not implement each other’s revenue laws. Within the EU, there is an EU-wide regulation which allows proof of another EU state’s tax debts.
Only debts which could have been enforced against the company are enforceable in liquidation. Therefore, a statute barred debt is unenforceable. Similarly, debts which are not recoverable for reasons of public policy or illegality may not be recovered.
Order of Entitlement
All costs, expenses and charges incurred in the winding-up, including the remuneration of the liquidator, remaining after payment of fees and expenses incurred in preserving, realising or getting in the assets, and such remuneration as may be allowed to a previous liquidator where the company had commenced to be wound up, shall be payable out of the property of the company in the priority set out below:
- the cost of the petition including the costs of any person appearing which are allowed by the court;
- costs and expenses necessarily incurred in connection with summoning, advertising and holding the creditors’ meeting;
- costs and expenses necessarily incurred in preparation and making of the statement of the company’s affairs and lists of creditors;
- necessary disbursements of the liquidator, other than expenses properly incurred above;
- costs payable to the solicitor for the liquidator;
- the remuneration of the liquidator;
- out-of-pocket expenses of the committee of inspection (if any).
Subject to payment of the preferential payments, the property of the company is applied in satisfaction of the liabilities, pari passu. Unless the constitution of the company applies otherwise, any remaining surplus is distributed amongst the members according to their rights and interests in the company.
Subject to the Act, nothing above is to affect any rights or obligations of the company or other person arising as a result of any agreement entered into by any person by which any particular liability of the company to a general creditor is postponed in favour of or subordinated to the rights or claims of any other person, to whom the company may be liable.
Vesting of Assets
In a members’ voluntary winding up, the liquidator may, with the sanction of a special resolution of the company or other sanction required by the Act, divide amongst the members, in specie or in kind, the whole or any part of the property of the company.
For this purpose, he may set such value as he deems fair on any property, to be divided in that manner He may determine how such division shall be carried out as between the members or different classes of members. No member shall be compelled to accept any shares or other securities on which there is a liability.
In the case of a voluntary winding up, the liquidator may, with like sanction, vest the whole or any part of such property in trustees upon trusts for the benefit of the members as the liquidator, shall think fit, provided that no member shall be compelled to accept shares on which there is a liability.
Calls on Shares
The liquidators must call in any unpaid sums due on shares which are required. In a limited company, the member’s liability is in respect of uncalled sums due on his shares only. In the vast majority of cases, the amounts due on the shares will be relative nominal. Most private company shares are fully paid, or the amount due is nominal.
The liquidator must prepare and settle the liability of present and former shareholders to contribute. The liquidator may settle any sums due from shareholders with the consent of the court, or in a voluntary liquidation, with the consent of the committee of inspection if any and if none the creditors.
A person who has sold shares which are not fully paid up, may within one year of the winding up, may be required to contribute the amount due on the shares if the present or successor owner does not pay it.
In the case of an unlimited liability company, the shareholders have potentially unlimited liability to contribute to the shortfall on winding up of the company.
Bankruptcy Rules Apply I
The bankruptcy rules apply to the winding up of companies. They determine such matters as the respective rights of secured and unsecured creditors, the debts provable, and the valuation of future and contingent liabilities.
All debts, including contingent, present, future debts, debts payable on a contingency and debts sounding in damages only, are payable. A just estimate is to be made, in so far as possible, of the value of such debts or claims. The value of such debts and claims so estimated is admissible to proof and shall be estimated according to their value at the date of winding up.
Rent or other payments falling, due prior to the commencement, may be claimed proportionately to that date only. This excludes the post-commencement pre-payable element. Where a liquidator remains in occupation of premises demised to a company which is being wound up, the right of the landlord to claim rent during the period of the company’s occupation, after the commencement of the winding up is not affected.
Bankruptcy Rules Apply II
If a debt is a sum certain, payable at a certain time on which interest is not reserved or agreed but is overdue, the creditor may prove for interest at a rate, not exceeding the appropriate rate/ This may be claimed for the period up to the commencement date. It begins if the debt is payable by virtue of a written instrument, at the time the debt was so payable. Otherwise, it begins on the making of demand in writing which claims interest. The appropriate rate is prescribed from time to time.
A creditor may prove for a debt not payable at the commencement date as if it was immediately payable, deducting a rebate of interest at the appropriate rate from the declaration of a dividend to creditors in a winding up, until the time when the debt would have become payable in accordance with its terms.
Unless the company’s constitution otherwise provides, dividends declared by a company not more than six years before the relevant date, are not admissible as debts in a winding up.
Preferential Payments I
The preferential debts on winding up are
- local authority rates due within 12 months before that date;
- tax assessable on the company in respect of a period ending on or before the relevant date, for which the tax concerned is due and payable, but the particular period shall be not more than 12 months’ duration;
- PAYE deductions due within 12 months before that date;
- VAT due within 12 months before that date;
- Local Property Tax in respect of the same period;
- all wages and salaries whether by way of commission, piece work, or cash of an employee in respect of services rendered during the period of four months prior to the commencement of winding up;
- all accrued holiday remuneration unless the winding up is for a voluntary winding up for reconstruction or amalgamation;
- social insurance contributions due within 12 months before that date, unless the company is being wound up voluntarily for the purpose of reconstruction or amalgamation;
- damages and costs payable to a person employed in connection with an occupational accident in the course of employment, save to the extent it is not indemnified by insurers unless the company is being wound up voluntarily for the purpose of reconstruction or amalgamation;
- sums due to an employee pursuant to any sick pay arrangement, ill health arrangement;
- pension contributions in respect of the company’s contribution and in respect of contribution paid by the employees which have been deducted.
Preferential Payments II
The following debts are preferential debts and are paid in priority to all other unsecured debts. The priority relates to the period before the date of commencement of winding up or appointment of a provisional liquidation. The preferential debts do not have priority over the rights of a secured creditor over the secured asset. It does have priority over the proceeds of a floating charge.
Employee claims for wages and salaries are not to exceed €10,000 per employee.
Where any payment has been made to an employee of a company, on account of wages or salary, or by way of ill health payments, or pursuant to a retirement benefit, out of monies advanced by some person for that purpose, the person by whom the money is advanced, has priority in respect of the money so advanced in a winding up.
Preferential Creditors & Floating Charge I
Preferential payments rank equally as between themselves and are to be paid in full if the assets are sufficient. Otherwise, they are paid proportionately.
In so far as the assets of the company available for payment of the general creditors are insufficient to meet the claims of the preferential creditors, the latter are to have priority over the claims of debenture holders under a floating charge.
Subject to retention of such sums as may be necessary for the costs and expenses of winding up; the foregoing debts shall be discharged forthwith so far as the assets are sufficient to meet them. A formal proof is not required in respect of social insurance debts.
Preferential Creditors and Floating Charge II
In the event of a landlord distraining on any goods of the company within the period of three months before winding up, the debts to which priority is given shall be a first charge on the goods or effects so distrained or the proceeds of sale thereof. In the case of money paid under that charge, the landlord is to have the same rights of priorities, as the person to whom the payment is made.
The Minister may by order alter the cap in respect of wages above for a claimant if it is appropriate due to changes in the value of money. Any remuneration in respect of a period of holiday or absence from work due for good cause is deemed to be wages.
The priority granted applies only to debts which, within a six-month period after the date of advertisement by the liquidator for claims in at least two daily newspapers circulating in the district, have become known to the liquidator, or are notified to the liquidator.
References and Sources
Companies Act 2014 (Irish Statute Book)
Companies Act 2014: An Annotation (2015) Conroy
Law of Companies 4th Ed. (2016) Ch.26 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
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
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