Published in Business Plus Magazine Sept 2014
PJ Lynch has over 18 years’ experience in the sector, having worked with more than 350 insolvency cases. His firm provides professional and independent advice on all aspects of insolvency, including corporate recovery and creditors’ voluntary winding up.
Directors Under Irish Law, there are no set of qualifications required to become a director of a company. Overall, I find that there is a light-touch approach by directors to their statutory obligations as officers of a company. Many directors of companies that have been placed in liquidation seem to lack basic knowledge of company law.
Legal Duties When a company is placed in liquidation, the directors of that company must:
- Engage in every way with the appointed liquidator
- Be fully transparent regarding company affairs and explain why the company was allowed to become insolvent.
- Transfer all books and records into the procession of the appointed liquidator.
- Ensure that an accurate Statement of Affairs is prepared in advance of the creditors meeting. In the case of a High Court winding up, directors should be aware that they are obliged to prepare a Statement of Affairs verified on affidavit and filed with the Central Office of the High Court within 21 days of the date of winding up.
Once the directors of an insolvent company demonstrate that they are transparent and have tried to operate the firm to the best of their ability, less legal proceedings need to be enforced, which allows the liquidator to quickly and successfully conclude the winding up.
Common Failings Over the years, I have encountered many problems in the management and operation of companies after they have been placed in liquidation. Among them, the directors’ approach to the company’s operation can often be gung-ho. They may have failed to keep proper books and records, under declared and failed to discharge the company’s taxes under relevant tax heads, or deliberately understated their tax liabilities.
In such situations, almost without fail, directors have deliberately used these monies to stabilise their bank accounts, or to pay other creditors. To try to justify using monies that constitute employee tax and social insurance to support the trading of the company is quite a bizarre procedure and a totally irresponsible attitude on the part of the director.
Restriction Section 150 of the Companies Act 1990 introduced a procedure for the restriction of a director where a company goes into liquidation due to its insolvency. The aim of the restriction procedure was to prevent officers of a company that became insolvent from setting up another Company involved in the same or similar business.
Section 160 of the Companies Act expanded the grounds on which the directors could be disqualified if they were found to be in breach of 297A of the Companies Act for delinquent, dishonest and reckless trading. In some cases, especially winding’s up ordered by the court, you find that the directors do not engage with the liquidator, resulting in the liquidator having to enforce Section 245 of the Companies Act to have the directors examined before the High Court.
Outlook I can see increasing improvements in the economy, especially in the construction industry and the retail trade. There may be more green shoots appearing, but among the green shoots there are always weeds that can cause financial blight.