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Creditor meetings and creditors’ voluntary liquidations
While the trend over the last five years has been a fall-off in the number of creditors’ voluntary liquidations, the second half of 2020 is likely to bring a new wave of activity.
The build-up of COVID-related losses from being temporarily closed, coupled with the impact on operations and profitability from social distancing restrictions as businesses re-open, is likely to see many companies run out of cash reserves were they to continue. Many will have no option but to go into liquidation.
Once the directors and shareholders have determined that the company does not have a reasonable prospect of survival and cannot continue to trade, the initial step in appointing a liquidator is to hold a creditors’ meeting. This can be an intimidating experience for any business owner.
Under company law, a director of the company is required to chair the meeting, address creditors and explain why the company has failed. This public meeting, often held in a local hotel, gives creditors the opportunity to question and challenge the directors on their handling of company affairs. Assembling a group of creditors who face the prospect of non-payment often creates an uncomfortable setting and exchanges within the meeting can often become heated or confrontational.
The failure of a business can be traumatic for directors and their families as their livelihoods are often linked to the business. The failure is seldom due to the lack of effort or input by the directors and this needs to be made clear to the creditors at the meeting. In many cases, the financial difficulties facing a company will have been caused by factors beyond the company’s control.
How we can assist directors with creditor meetings
The key to reducing stress for directors associated with chairing the creditors’ meeting is to have professional advice and support from an experienced insolvency practitioner. In more contentious liquidations, it is often advisable to have either the company’s solicitor or accountant attend the creditors’ meeting to assist the chairperson in dealing concisely and forthrightly with any questions or matters that arise.
To ensure a creditors’ meeting runs smoothly, it is incredibly important that company directors are well prepared. Crowe’s insolvency team has many years’ experience guiding company directors through these meetings. To ensure adequate preparation, we hold a specific planning session with directors where we help anticipate and prepare for the kinds of questions that creditors may ask, so that the chairperson is better prepared and can move matters along to conclude the meeting and appoint a liquidator.
At the meeting, the nominated chairperson will deliver a directors’ statement – a brief outline of the history of the company and details of the causes of failure. Our insolvency team will help advise on the preparation of this statement to ensure the company directors give the best account of themselves and the reasons for the company failure.
Once the liquidator is appointed, the pressure from creditors always lifts as the liquidator takes the lead in communications. The creditors’ meeting is a key pressure point for directors and so the person chairing the meeting should try to have the liquidator’s appointment ratified as quickly as possible.
To ensure a creditors’ meeting runs as smoothly as possible, our insolvency team manages a signing-in process which ensures that only authorised persons attend. We also help facilitate any questions raised, with each person identifying themselves and the creditor they are representing.
Crowe will also arrange for the minutes of the meeting to be taken and, once approved by the chairperson, add these to the liquidation papers provided to creditors. The head of our insolvency practice, Aiden Murphy, as company nominee for liquidator, attends all creditors’ meetings and addresses any further concerns creditors may have after the meeting.
For more advice on creditors’ voluntary liquidations and organising creditors’ meetings, or if you need assistance with any company liquidation procedure, please contact Aiden Murphy or a member of our insolvency team.
Restructuring & insolvency services
+353 1 448 2214
Director, Restructuring & Insolvency
+353 1 448 2200
Restructuring & insolvency services
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