Distribution

Part 11 – Winding Up

The rules in relation to costs, now apply to all kinds of windings-up. That is new. Section 617, which sets out the rules, is a mixture of Section 281 of the 1963 Act and Order 74 rule 128(1) of the Rules of the Superior Courts. The only new element is this: ranking second in priority are any costs incurred in connection with the summoning, advertisement and holding of a creditors’ meeting.

The Act no longer refers to “assets” but to “property of the company”.

The pari passu rule is re-enacted in Section 618. Subordination agreements are exempted from the pari passu rule.

In the case of a members’ voluntary liquidation, a liquidator can divide among the members all of the company’s property, and may set upon any company property whatever value he deems fair. The full rule is set out here – Section 618(3) – and practitioners will recognise that it is Article 137 from Table A (Schedule One) of the 1963 Act.

The debts which must be proved in a winding up are set out here (Section 620) and there is no change in the law (previously, this area was set out in Section 283 of the 1963 Act).

Certain bankruptcy rules are imported into the Companies Act. This is not new; previously, this could be found in Section 284 of the 1963 Act.

The three rules which are imported from bankruptcy are: the rules in relation to (a) the respective rights of secured and unsecured creditors; (b) debts provable; and (c) the valuation of annuities and future and contingent liabilities.

The provision in Section 284(3) of 1963 has not been re-enacted because judgment mortgages registered before the commencement of the 1963 Act are not enforceable.

Two sections – Section 621 and Section 622 – make an exception to the pari passu rule and gives preferential status to the Revenue Commissioners and the company’s employees, as well as some other parties.

If there is not enough money to pay the preferential creditors, they rank equally among themselves.

The law in relation to this area was previously set out in Section 285 of the 1963 Act. There are minimal changes to what went before. There is no longer any statutory right to compensation such as that in the Workmen’s Compensations Acts 1934-1955, so references to that have been omitted. Second, certain paragraphs have been amended to alter the period of calculation, and to update the statutory references.

Parties making preferential claims must make them within 6 months of the date when the liquidator advertises that such claims must be made. This advertisement will be placed in at least two daily newspapers which circulate in the district where the company has its registered office.

The main points in relation to preferential debts are:

1. The preferential creditors have propriety over the claims of creditors who hold floating charges. This is the case even where the floating charges were drafted to contain an “automatic crystallisation clause”, and where the debenture-holder caused the floating charge to crystallise before the commencement of the winding up (this was held in Re JD Brian Ltd (No 1) [2012] 1 ILRM 27)

2. Sums deducted by the employer from the employee’s pay in respect of PRSI do not form part of the company’s assets in a winding up. Such sums have been called “super preferential debts”, ranking before all other preferential debts and even before the liquidator’s remuneration and expenses. If the PRSI ought to have been deducted but was not, however, then that sum will merely have preferential status, not super preferential status.

3. All local rates accrued by the company in the twelve months before the winding up have preferential status.

4. Every employee can claim up to €3,174.35 in unpaid wages for services rendered, and that sum has preferential status. (This, however, does not apply to employees who work under a contract for service, i.e. independent contractors).

5. Accrued holiday pay and sick pay can be claimed without limit, as can outstanding pension contributions.

6. Any sums paid to an employee for unfair dismissal or for work accidents have preferential status.

The Companies Liquidation Account is the account which the liquidator uses to lodge unclaimed dividends or any undistributed balances.

The rules pertained to the Account are set out in Section 623.

The section is a mixture of Section 307 of 1963 and Order 74 rule 131 (3) of the Rules of the Superior Courts.