Please contact Aiden Murphy or a member of our liquidations team if you wish to confidentially discuss your requirements and receive a no-obligation consultation.
The first question to consider is whether your company is insolvent or not. An insolvent company is one where its debts outweigh its assets, or where the company cannot pay its debts when due. There are two simple tests to assess whether a company is insolvent – the balance sheet test and the cash flow test.
Of these two insolvency tests, the cash flow test is probably the most important, as you can have a strong asset position but if you cannot pay your bills on time you may find the company is forced into liquidation.
However, there are many circumstances in which a company may not pass one or both of the above tests but it is still reasonable for the directors to continue to trade. For example, certain companies may have a seasonal business where the company may temporarily fall into insolvency during the quiet period and subsequently regain solvency once trade improves. This fact has been recognised by the courts, and in the case of Re Hefferon Kearns Ltd the judge remarked that:
“it would not be in the interests of the community that whenever there might appear to be any significant danger that a company was going to become insolvent, the directors should immediately cease trading and close down the business. Many businesses which might well have survived by continuing to trade coupled with remedial measures could be lost to the community.”
Therefore, the decision to cease trading and liquidate should be made when the company is insolvent and the directors are satisfied that there is no reasonable chance of the company being able to trade out of its insolvent position. Company directors should seek appropriate professional advice at this point as there may be alternatives available to winding up the company, such as informal restructuring, examinership, a scheme of arrangement, etc.
There is a small proportion of cases where directors have acted dishonestly in their stewardship of a company prior to the liquidation. In these circumstances, there are different levels of sanctions that may be imposed upon the directors, depending on the severity of their misconduct. These sanctions are:
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:
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.
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:
Crowe welcomes new rescue process for small firms
Company liquidation in Ireland – FAQs part 2
Company liquidation in Ireland – FAQs part 1
Risks with company director personal guarantees
Directors’ duties in company insolvency
Redundancies could cost Irish Exchequer €500m
Managing creditor meetings
Restructuring & insolvency solutions
Phoenix companies & insolvency
ODCE guidance on directors duties during COVID-19
Rightsizing your business
Landlords & tenants working together during COVID
Rent abatement negotiations
Exchequer support needed for redundancy costs