Company liquidation in Ireland – FAQs part 2

COVID-19 has dealt a severe blow to the cash flow of countless companies. Many businesses which performed well prior to the pandemic, may now have become unviable.  As a result, these companies face insolvency and will either require investment to shore up losses or a liquidation to wind up the company. The question often facing directors is that, if funds are available, should they put them into the insolvent company or set up a new company?

At Crowe we help directors of insolvent companies make the best decisions and make the best of what is a difficult situation. In this second part of our two-part article, our restructuring and insolvency team answer some of the frequently asked questions from directors of ailing companies.

Can company assets be used to pay the costs of the liquidation?

The assets of a liquidated company, other than those secured by a fixed charge, are in the first instance used to pay for the costs of the liquidation. These costs include:

• The costs and expenses incurred in connection with the calling of a creditors' meeting
• The costs and expenses incurred in the preparation of a statement of the company's affairs 
• Any necessary disbursements by the liquidator
• The costs payable to the solicitor for the liquidator
• The remuneration of the liquidator
• Any out-of-pocket expenses necessarily incurred by a committee of inspection

In short, priority is given to the liquidation costs, so if a company has fixed assets or stock that can be sold or debts that can be collected, the liquidator can use these assets to pay the costs of the liquidation and there is no legal requirement for the directors to cover these costs from their own resources or put cash into the company at the start of the liquidation.

How can liquidation costs be kept to a minimum?

The costs of a liquidation can be greatly reduced by the directors co-operating and assisting the liquidator. This may involve the directors bringing the assets of the company to one location and helping to identify any potential buyers for those assets, or assisting in the collection of debts either by way of dealing with customer queries or ensuring all supporting documentation for outstanding invoices is made available. The quicker the liquidator can realise value from any assets, the lower the administrative costs associated with that aspect of the liquidation will be.

Providing accurate books and records, having tax filings up to date and replying to the liquidator’s queries in a timely manner can cut what is normally up to an 18-month appointment in half, thus saving time and costs.

Who will pay for redundancy costs in a liquidation?

In circumstances where an employer is unable to pay statutory redundancies to their employees because of an insolvent liquidation, the Department of Employment Affairs and Social Protection have established a Redundancy Payment Scheme that can cover the cost of the statutory redundancy due to the employee. The rate of statutory redundancy is two weeks’ pay for every year of service (over the age of 16) plus one additional week’s pay. Payment is subject to a limit of €600 per week. 

As a result of the scheme, the state will guarantee that all qualifying employees will be paid their statutory entitlements regardless of the asset position of the company, and the liquidator will administer this process.

Are directors allowed to buy the assets of their company if it is being liquidated?

A liquidator is permitted to sell the assets of a company being liquidated to a former director. Prior to selling the assets to the director, the liquidator must give 14 days’ notice to the creditors of the company of his intention to sell the assets to the director, pursuant to section 629 of the Companies Act 2014. 

Can creditors pursue me personally for the debts of the company?

When a limited company is liquidated, under company law the limited liability status of the company generally protects the directors from any liability to company creditors. The main exceptions that can arise are:

1. Personal guarantees
   The directors should review the potential recourse from suppliers, landlords and funders if personal guarantees have been given. Crowe has seen instances where personal guarantees for overdrafts have not materialised, as the bank have instead exercised their right to set off other bank balances against the overdraft. Also, amounts due to suppliers who have retention of title clauses and hold personal guarantees are often dealt with by way of return of their goods, which reduces their claim. Landlords, if assisted with the return of the property in a lettable condition, can be sympathetic as regards personal guarantees and are often open to negotiation on the level of claim if engaged with early in the process.
2. Unpaid PAYE on directors’ remuneration
   The protection of limited liability that a company offers does not extend to directors in cases where there is an element of unpaid PAYE attributable to their own remuneration. In these cases, the director may be personally liable for the element of PAYE the company has failed to pay.
3. Personal liability for the debts of the company
   In extenuating circumstances where directors have acted recklessly and this is proven to the satisfaction of the High Court, they may be made personally liable for some or all of the debts of the company.

What is required of a director once a liquidator is appointed?

When a liquidator has been appointed to a company, its directors are under a duty to co-operate with the liquidator. The liquidator takes full responsibility for selling the assets, collecting debts and dealing with creditor and employee claims. In fact, there is a limited time requirement from directors once the liquidator has been appointed. Very often once a liquidator is appointed it can be a relief for directors, as the pressure from creditors seeking payment is focused on the liquidator and not the director. 

How long does the liquidation take?

The length of time taken to complete a liquidation is very much dependent on the individual circumstances arising in each case. Some liquidations can continue for a number of years. However, in a straightforward liquidation where the directors have acted honestly and responsibly and the assets of the company can be easily disposed of, it could be assumed that a liquidation can be completed within 12 months. 

Supporting directors through the process

Each company’s circumstances will be different. Many directors of companies facing insolvency will seek to trade out of the current difficulties, while others will see liquidation of the insolvent company as the appropriate strategy. These are significant and difficult decisions for directors to make, and Crowe can provide the advice and support they need so they can appraise their options and identify what is best in their circumstances. 

We offer a free initial consultation to company directors who wish to avail of an independent perspective and attain clarity as to their options and available strategies.

With 80 years’ experience and expertise, we are the trusted partner providing a range of specialist services for many professional services firms. We would be delighted to meet with any client referrals you might have who could benefit from this service line.

In the first part of this article, we answered questions about how directors can recognise of a company is insolvent, what sanctions, if any, a director of an insolvent company may face and whether they can take up directorships of other companies after being through a liquidation process.

Please contact a member of our restructuring and insolvency team if you wish to confidentially discuss your requirements and receive a no-obligation consultation.