THE LIQUIDATION OF A COMPANY

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.