Creditors Voluntary Liquidations

 
There are two definitions of insolvency – one is where the liabilities exceed the assets and the other being where the company is unable to pay its debts as they fall due.
 
If a company is insolvent and unlikely to return to profitability, the directors should seek professional advice and consider appointing a liquidator.
On the appointment of a liquidator, the assets of the company are realised and distributed to creditors in order of priority in accordance with company legislation.
 
When a company is solvent, the directors have a fiduciary duty to the shareholders but when it becomes insolvent, the directors duties are to the creditors of the company and there is an obligation to organise an orderly windup in such trading conditions to avoid pitfalls such as being held liable for reckless trading.
 
A Creditors Voluntary Liquidation (CVL) is a ‘voluntary’ liquidation in the sense that it is initiated by the company directors as opposed to a third party creditor (who can initiate a Court Liquidation).
 
The first step is for the directors to have a board meeting to resolve that the company be wound up and following this will convene a Creditors Meeting.
 
Convening Creditors Meeting
The directors convene a Creditors Meeting in accordance with company law by:
·      Issuing 10 days notice to creditors by post (statutory notice of meeting together with general and special proxy forms to allow representatives attend on creditors behalf).
·      Advertising statutory notice of meeting in two national newspapers at least 10 days before the meeting.
  
Creditors Meeting
Before the creditors meeting takes place (and usually on the same morning), a meeting of the shareholders takes place to pass a resolution to place the company into liquidation and to nominate the chosen liquidator who has agreed to act.
 
The creditors meeting takes place at the place and time advertised in the statutory notices and is chaired by one of the directors who may be assisted by an accountant or legal advisor.
 
The purpose of the meeting is:
·      To lay before the meeting an up to date Statement of Affairs.
·      To ratify the nominated liquidator or to give the creditors an opportunity to appoint their own preferred choice of liquidator (outcome dictated by monetary claim of creditors 'votes' or proxies).
·      To give the creditors an opportunity to appoint a Committee of Inspection.
 
Duties of the liquidator in a Creditors Voluntary Liquidation
On appointment, the liquidator will write to the various class of creditors and agree their claims against the company, and will liaise with the various stakeholders including banks, landlords, suppliers (retention of title claims) and employees (redundancy and minimum notice claims).
 
The liquidator’s duties include:
-      Realising the assets of the company for the benefit of the creditors.
-      Paying out any dividend if any in order of priority according to company law.
-      Liaising with various stakeholders including employees, banks, creditors.
-      Investigating the collapse of the company.
-      Reporting to the Office of the Director of Corporate Enforcement (ODCE) on the reasons for the company’s collapse and whether the directors have acted honestly and responsibly in accordance with their statutory duties.
 
Our principal, Ultan McCarthy, is an experienced Liquidator having acted in numerous liquidation assignments in the greater Dublin and Leinster area. He is also a member of the Irish Society of Insolvency Practitioners (ISIP).
 
If your company is insolvent and unable to pay it's debts, the company directors have a statutory duty to take professional advice in relation to an orderly winding up.
 
To discuss these and other issues which may be relevant to your company, call Ultan McCarthy on 01-444 5260 for professional and confidential advice.