THE LIQ­UI­DA­TION OF A COM­PANY

Bray People - - NEWS - with Der­mot Byrne

USU­ALLY it is the di­rec­tors of a com­pany who call a cred­i­tors’ meet­ing to put the com­pany into liq­ui­da­tion.

The di­rec­tors’ first ac­tion will be to stop trading and the em­ploy­ees will be let go. Once the di­rec­tors are aware that a com­pany is not sol­vent and not likely to be sol­vent in the fu­ture they must cease trading.

At the cred­i­tors meet­ing a liq­uida­tor will be ap­pointed by a ma­jor­ity vote of the cred­i­tors. The liq­uida­tor’s im­me­di­ate task will be to se­cure what­ever as­sets there are and ad­vise all the cred­i­tors of his ap­point­ment.

Cred­i­tors for wages, busi­ness rates and taxes are pref­er­en­tial where the li­a­bil­ity is not more than 12 months old.

Other debts, in­clud­ing the bank, are just or­di­nary cred­i­tors. They will likely re­ceive a small pro­por­tion e.g. ten cents in the euro after the pref­er­en­tial cred­i­tors and liq­uida­tor costs are paid.

A bank may not worry if a com­pany goes into liq­ui­da­tion and it has a reg­is­tered charge on the premises. On the sale of the premises this charge will have pri­or­ity for pay­ment. Where there is no such se­cu­rity a bank will have got a per­sonal guar­an­tee from the di­rec­tor so that they can get their loans back from the di­rec­tor’s per­sonal as­sets.

A smart di­rec­tor should only put a com­pany into liq­ui­da­tion after get­ting the ex­po­sure to the bank as low as pos­si­ble.

Nor­mally a liq­uida­tor will walk away from leased premises as there is no fur­ther need for it. Sim­i­larly with motor ve­hi­cles on lease or on HP if more is owed on them than what they are worth a liq­uida­tor will return them to the lease/HP com­pa­nies.

The chief as­sets of a com­pany in liq­ui­da­tion will usu­ally be trade debtors for goods and ser­vices supplied.

When a liq­uida­tor is ap­pointed then the debtors have a habit of find­ing some­thing amiss with the prod­ucts that they re­ceived and will try to avoid pay­ment. The liq­uida­tor will usu­ally have to hire a so­lic­i­tor to col­lect the debts.

When what­ever is re­al­is­able from the debtors is re­ceived, then the liq­uida­tor will set­tle the pref­er­en­tial cred­i­tors and give the or­di­nary cred­i­tors a pro­por­tional pay­ment.

A liq­uida­tor may also need to see if a di­rec­tor was en­gaged in wrong­do­ing and should be re­stricted or dis­qual­i­fied from act­ing as a di­rec­tor in the fu­ture. Such a course of ac­tion will have to be in court and is rare enough as the liq­uida­tor will not have the re­sources to fund it. Some­times an ag­grieved cred­i­tor such as the Rev­enue Com­mis­sion­ers may fi­nance such court ac­tion.

The fail­ure of any com­pany is a per­sonal dis­as­ter for the di­rec­tors who of­ten will have loaned the com­pany per­sonal funds to keep it go­ing.

Only a small mi­nor­ity will have abused the rules and in re­cent years there are se­vere le­gal sanc­tions for them.

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