Company Law Sabir
Company Law Sabir
Company Law Sabir
Introductory Principles
Main Reforms within the Companies Act 2014
The Company Law Review Group came into existence with the
Company Law Enforcement Act 2001, with the aim of advising on
possible reforms in Irish company law and creating an efficient
world-class company infrastructure. Its chairman was Thomas B
Courtney. This Group made recommendations that over-hauled the
company law in Ireland radically since the 1963 Act.
The result was the Companies Act 2014 and it contains all previous
Acts, from 1963 to 2012, in a consolidated and amended form. The
below is a summary of changes brought in by the CA 2014:
Consequences of Incorporation
Advantages
1. Separate Legal Personality
2. Limited Liability
3. Transferable Interest
4. Continuity of Existence
5. Financing the Company
6. Tax Regime
Disadvantages
7. Regulation and Enforcement
2. Limited Liability
Limited liability is the most significant advantage of incorporation
for many businesses. It fosters enterprise by enabling individuals to
pursue novel business ideas while limiting the level of personal risk
they have to take on. It also helps to promote investment, as
investors would be much less likely to put money into someone
else’s business venture if they could later be called on to pay the
debts of the business in the event of failure.
In the case of a company incorporated with limited liability, this
acts together with a separate legal personality to insulate the
company’s members from the effects of business failure.
As with any type of company, a limited liability company is still
liable for every cent it owes, but the members of a limited liability
company will never be required to pay more than the par value of
the shares they own (plus any share premium) towards the
company’s debts. In the case of fully paid-up share, no further
payment to the company can be required. Where share capital has
not been paid in respect of a share owned by a member, the
liability of that member is capped at the level of unpaid share
capital. Such liability as may be outstanding is to the company
rather than directly to its creditors.
The current common practice of banks requiring directors of small
businesses to provide personal guarantees for the debts of the
companies to the banks has somewhat diluted the benefits of
limited liability in practice.
3. Transferable Interest
A company is owned by its shareholders. If the shareholders wish
to transfer the company, all that they need do is sell their shares,
which is a relatively straightforward transaction. By contrast, in
order for a sole trader or partnership to dispose of a business, all
the individual assets and liabilities of the business must be
transferred separately. Given that this may require the agreement
of third parties, such as creditors or landlords, this is a very
burdensome process.
The company also provides a straightforward method for the
ownership of a business to be shared between a number of people,
for the relative size of their respective shares to be changed, and
for new owners (members) to be added. By contrast, if one partner
in a partnership wishes to dispose of his interest, this can be a
complicated process.
4. Continuity in Existence
Companies enjoy what is known as “perpetual succession”. This
means that a company survives the death of any or all of its
shareholders, directors or managers, and the straightforward
method of ownership transfer means that the business is unlikely to
be disrupted as a result of such occurrences. By contrast, when a
sole trader dies his business will come to an end and any business
assets and liabilities will fall into his estate. Where a partner dies,
the partnership is automatically dissolved.
6. Tax Regime
This is a major consideration for businesses considering
incorporation. The difference between corporate and personal rates
of taxation will be crucial in deciding whether it is economically
beneficial to incorporate.
At present, the standard corporate rate of tax is 12.5% while the
top personal rate is approaching four times that, once levies and
PRSI are factored in. Additionally, there are some tax incentives
which might only apply to companies. For example, the taxation in
relation to pension contributions is more generous for company
directors than they are for employees or self-employed persons.
Similarly, it can be more tax-efficient to offer incentive schemes to
employees of companies than to employees of sole traders or
partnerships.
2. Constitutional Documentation
9. A DAC must have "DAC" at the end of the company name, unless it
has a charitable object or is a not for profit (s 971). A DAC has the
capacity to do any act or thing stated in the objects set out in its
memorandum (s 972). The reference in it to an object includes a
reference to anything stated in the memorandum to be a power to
do any act or thing (whether the word "power" is used or not).
10. The capacity of the DAC extends to doing any act or thing
that appears to it to be requisite, advantageous or incidental to, or
to facilitate, the attainment of its object and that is not inconsistent
(s 972(2)(b)). A DAC may, by special resolution, alter the provisions
of its memorandum of association by abandoning, restricting or
amending any existing object or by adopting a new object and any
alteration so made shall be as valid as if originally contained
therein, and be subject to alteration in like manner (s 974).
Memorandum of Association
1. The name clause – the name of a company limited by share or
guarantee must include "limited" or "teorenta" as the last word
unless special permission is received from the Minister for Jobs to
remove it (e.g. clubs, charities). A public limited company must end
with the letters plc or cpt (CuideachtaPhoibliTeoranta). This
reflects the principle that it should be brought to an individual's
notice that he is dealing with a limited liability entity.
2. Objects Clause –it should be noted that the objects cannot be
changed with retroactive effect.
o In Northern Bank Finance Corp v Quinn, a company
realised that the guarantee it had given to the plaintiff bank
was ultra vires. It attempted to retrospectively change its
objects to allow this. Keane J declared this attempt to be
invalid and spoke of the strange consequences if companies
could retrospectively deprive themselves of certain objects.
Articles of Association
Often regarded as the document which sets down the company's
"bye-laws", the articles form the internal rules of management and
governance within the company and define the relationship as
between the directors, the shareholders and the company itself.
The rules govern, inter alia, matters such as company meetings,
transfer of shares, voting rights and the appointment and removal
of company officers.
The Articles are no longer a feature in the private company limited
by shares. What used to make up the articles - a copy and paste
Table at the back of the Companies Act 1963 - has been subsumed
into CA 2014.
The rules on articles will continue to govern DACs, but according to
CA 2014, s 968(5), the Articles, instead of containing any
regulations in relation to the DAC, may consist solely of a
statement to the effect that the provisions of the Companies Act
2014 are adopted and, if the articles consist solely of such a
statement, subsection (4) shall apply.
It should be noted that as between the memo and the arts, the
memo is deemed to be the superior document and the articles
cannot extend the area of the company’s activities.
Alteration of the Articles
Any clause that could lawfully have been inserted in the original
articles may subsequently be inserted by the amendment. However,
the power to alter the articles is subject to two inherent limitations:
Statutory Authority
There are numerous statutes under which controllers or dominant
shareholders are expressly made personally liable or accountable
for certain activities. For example, under s 610 of the 2014 Act, an
officer of the company such as a director can be declared (by a
liquidator or examiner) to be personally liable, without limitation,
for all or part of the debts of the company for reckless or
fraudulent trading. Personal liability can be imposed for
misfeasance under s 612 of CA 2014. Personal liability can be
imposed on officers under s 609 of CA 2014 where they have failed
to ensure the company has kept adequate accounting records.
Other types of legislation may provide for the piercing of the veil
such as the Tax Acts contain numerous instances where companies
and their owners are treated as one and the same, for example
where there are transactions with "participators" in "close
companies".
Equally, health and safety legislation can be directed at both
companies and their officers.
o DPP v Roseberry Construction Ltd (2003) – a company
and its directors were both fined for breaches of health and
safety legislation which had led to a fatality. The director
appealed the severity of the fine and argued that he himself
should not be personally fined as the company and him were
separate persons. The Court of Criminal Appeal held that the
principle of separate legal personality could be pierced by
legislation.
Agency
Courts have been prepared to infer the existence of agency
between a company and its owner/shareholders particularly where
the owner/shareholder is itself another company.
o Smith Stone & Knight v Birmingham Corporation
(1939) – a holding company was the owner of property in
which one of its subsidiaries was carrying on business. When
this property was compulsorily acquired by the local
corporation, holding company was held to be entitled to
compensation for the disturbance to the business which arose
from the need to relocate. Atkinson J listed the following
factors all based on the control over the day to day operations
to be taken into account:
1. Are the profits of the subsidiary treated as profits of the
parent?
2. Were the persons conducting the business of subsidiary
appointed by the parent?
3. Was the parent the ‘head and the brains’ of the trading
venture?
4. Did the parent govern the adventure?
5. Were the subsidiary company’s profits made by the skill
and direction of the parent?
6. Was the parent in effective and constant control of the
subsidiary?
This reasoning has been criticized by Keane, in his book Company Law,
who points out that these criteria may not be capable of general
application. He says that if an agency were to be inferred in every such
case, a significant number of subsidiaries would be treated as the agents
of their holding companies and if this were so it would potentially expose
those holding companies directly liable for the debts and liabilities of its
subsidiary.
Another exception is that one cannot use the corporate veil with a
view to evade legal obligations.
o Gilford Motor Company v Horne (1933) defendant
entered into a contract with plaintiff not to canvass their
customers after he left the company’s employment. He tried
to get around this by forming a company and used it to carry
out the canvassing. Held that he could be stopped from doing
this.
o Jones v Lipman (1962) – the def who had contracted to sell
his house to the plaintiff tried to avoid a claim for specific
performance to sell the house. He conveyed the house to a
company which he owned and controlled in an effort to evade
the Plaintiff’s enforceable contract for sale. The argument of
SLP was rejected.
Gratuitous Dispositions
Generally speaking, any transaction which purports to give away a
company’s assets will be deemed suspect.
The first issue is whether there is an express object or power
allowing for such a transaction. A company’s objects can be drafted
so as to allow these types of dispositions. If a co does contain an
express power or object to make gratuitous dispositions, then any
payment to this effect will not be ultra vires even if they do not
benefit the company.
That said, it seems that there may be a limitation on these express
objects or powers. The courts will strictly construe the objects and
powers and will only deem them capable of allowing gratuitous
dispositions where it is clearly stated.
In Re Fredricks inns the Revenue tried to argue that the
payments to them were allowed in the companies memo. If there is
no express power object allowing for gratuitous dispositions, it will
be very difficult to argue that there is an implied power allowing
for them unless there is a clear benefit to back the company.
A key case is Re Horsley & Weight Ltd - the former director of a
carpentry business was given a £10,000 retirement pension policy
by the new directors. Soon after his retirement the company went
into liquidation and the liquidator sought to recover that money as
an ultra vires act. The Court said that the giving of the policy might
have been misfeasance if the company had been "doubtfully
solvent" on the date it was granted but this was not the case and
the liquidator's suspicion that the company could not afford it was
"largely based on hindsight. Buckley LJ stated that "[t]he objects of
a company do not need to be commercial; they can be charitable of
philanthropic; indeed, they can be whatever the original
incorporators wish, provided that they are legal. Nor is there any
reason why a company should not part with its funds gratuitously
or for non-commercial reasons if to do so is within its declared
objects
Re Greendale Developments Ltd (1998) – a company paid one
of its directors £435,000. When the company was being wound up
the liquidator sought the return of the monies. Keane J pointed out
there was no object or power authorising the payment in question.
The director argued that the payment had been made with the
assent of all the shareholders and there was no evidence that the
company had been insolvent at the time. Keane J accepted the
principle (originally established in Buchanan v McVey (1954)
that where all the corporators agree to a certain course of action,
such an act is valid subject to 2 prerequisites:
(i) The transaction agreed should be intra vires the company,
and
(ii) The transaction should be honest.
In this case the payment fell foul of the first principle. The fact that
the shareholders had approved the payment could not save it as the
payment was no intra vires the company.
5. Corporate Authority
Introduction
Prior to the enactment of CA 2014, difficulties sometimes arose
when directors acted beyond their delegated authority and
purported to enter contracts on behalf of the company.
Usually, directors acting alone do not have such power. Only the
board has the power to enter into binding contracts. The board can
delegate this power to a Managing Director.
Third parties, who thought they entered a binding contract with the
company in question, would seek to enforce the contract. They
would argue was that the director had a certain kind of authority to
do so. They could not argue that the director had the actual
authority to do so. But they could ask the court to infer that the
director had ostensible authority to do so. This would require a
consideration by the Court of the state of knowledge of the board:
the key being, did the board know that the director in question was
acting in the manner in which he was acting, in which case, they
will be deemed to have "given him their blessing", so to speak, and
the company would accordingly be bound by contracts entered into
by such a director, acting on his or her own.
s 39 of CA 2014 states: Where the board of directors of a
company authorises any person as being a person entitled to bind
the company (not being an entitlement to bind that is, expressly or
impliedly, restricted to a particular transaction or class of
transactions), the company may notify the Registrar in the
prescribed form of the authorisation and the Registrar shall
register the authorisation.
Section 39(2) states: A person so authorised, where his or her
authorisation is registered in the foregoing manner, is referred to
in this Act as a "registered person"; where, in a provision of this
Act, that expression appears without qualification, it shall be taken
as a reference to a registered person authorised by the board of the
directors of the company to which the provision falls to be applied.
Two things should be noted. First, the statute does not make the
registering of a registered person mandatory. It says the company
"may", etc, etc. Second, will the courts decide that a third party
must consult the CRO to see if the company he or she is dealing
with has a registered person? If so required, that will quickly
answer the question as to whether the person the third party is
dealing with has the authority to bind the company to the contract
under discussion.
Companies conduct business by entering into contracts. However,
a company requires agents to enter into these contracts on its
behalf because a company, in and of itself, is a notional entity
without a physical existence. It must give its authority to agents
(usually directors) to carry out this function.
Deemed Authority
Section 40 of CA 2014 – where there is a question whether the
person who exercised or purports to exercise, the company powers;
the following namely BOD and any registered person, shall each be
deemed to have authority to exercise any power of the company
and to authorise others to do so
Section 40(8) – does not include the power of management but only
the power to enter transactions with third parties
S. 40(11) – this in an addition to the Rule in Turquand’s case not in
substitution
Ostensible Authority
This arises where a person acts on behalf of a company without any
actual authority, but in such a manner that it would be unfair on
other persons to deny that the company is bound by that person’s
act. It is essentially a form of estoppel, preventing the company
from denying an agent’s ostensible authority, which the company
represented the agent as having.
o Kett v Shannon and English (1987) – distinguished actual
and ostensible authority. Actual authority exists when there
is an actual agreement between agent and principal, whereas
ostensible authority does not derive from a consensual
arrangement and exists where the principal makes a
representation.
Step 3: Reliance
The 3rd party must have relied on the representation. Usually the
fact that the outsider entered the transaction might constitute
evidence that they were assuming and relying on the belief that the
agent in question had ostensible authority.
Step 4: The memorandum and articles
Step 4 requires two things. First, that the transaction must be
within the objects set out in the memorandum. Second, that the
purported agent have the power to do what he did if he had actual
authority in the first place.
For example, if the articles stated that the MD did not have the
power to enter into certain contracts, then he cannot bind the co.
therefore, even if an outside was not actually aware that the
articles prevented the MD from entering into this type of contract,
the company will still not be bound.
Step 4 is based on the doctrine of constructive notice. The
doctrine of constructive notice will deem the outsider to know of
the contents of the memorandum and articles, as they are available
to the public for examination, whether he actually knows them or
not. Individual directors will have little or no potential actual
authority in the model regs.
Limitations to Turquand
1. Where the irregularity is of public record:
o It can have no application where the outsider is shown to
have been aware of the irregularity.
o If the irregularity is a matter of public record, the outsider
might be said to have constructive notice of the irregularity.
See the case below.
o Irvine v Union Bank of Australia (1877) – the articles
required special resolution of members to allow director to
borrow above a certain amount. Such an amount was
borrowed without a resolution and it was held that the bank
could not rely on Turquand. It had constructive notice that
the resolution had not been passed as no copy was filed in the
Companies Office.
6. Directors
Introduction to Directors
Part 4 of the CA 2014 deals with corporate governance, i.e.
directors and secretaries, proceedings of directors, definitions of
members, rules relating to meetings and resolutions, and so on.
Some of this chapter relates to Part 4, but more of it relates to Part
5, which deals with director’s duties in general.
Section 128(1) states:
o A company shall have at least one director (prior to CA 2014,
the minimum amount of directors was 2; this still holds good
for DACs). If default is made by a company in complying with
this provision for 28 consecutive days, the company and any
officer of it who is in default shall be guilty of a category 3
offence.
o One director companies are only permitted in relation to the
private company limited by shares. A company may not have
a body corporate or an unincorporated body of persons as
director of the company (s 130). Any purported appointment
of a body corporate or an unincorporated body of persons as
a director of a company is void.
Company Secretary
A company must have a secretary, who may be one of the directors
(s 129(1)).
The secretary is appointed by the directors of the company for such
term, at such remuneration and upon such conditions as they may
think fit; and any secretary so appointed may be removed by them.
The directors of a company have a duty to ensure that the person
appointed as secretary has the skills or resources necessary to
discharge his or her statutory and other duties (this is new - s
129(4) - and the skills aren't specified). This rule applies also where
one of the directors of the company is appointed as secretary.
Where a company has only one director, that person may not also
hold the office of secretary of the company. The performance of
acts by a person in dual capacity as director and secretary is not
permitted (this relates to certain documents which may have to be
signed by a director and a secretary) (s 134).
Director’s Consent to Appointment
Any purported appointment of a director without that director's
consent shall be void (s 144). The first directors of a company are
those persons determined in writing by the subscribers of the
constitution (or a majority of them).
In the case of a single-member company the directors of the
company may from time to time appoint any person to be a director
of the company, either to fill a casual vacancy or as an addition to
the existing directors, (as long as the total number of directors of
the company does not at any time exceed the number, if any,
provided for in its constitution). Note also that any director
appointed thus holds office only until the next following AGM, and
is then be eligible for re-election. Put at its simplest, a single
member company may from time to time, by ordinary resolution,
increase or reduce the number of directors (s 144(3)(d)).
Removal of Director
A company may remove a director before the expiration of his or
her period of office notwithstanding anything in its constitution or
in any agreement between it and him or her by ordinary resolution
(s 146), though this provision does not authorise the removal of a
director holding office for life (s 146(2)).
In the case of a resolution to remove a director
o (a) the company shall be given not less than 28 days' notice of
the intention to move any such resolution except when the
directors of the company have resolved to submit it;
o (b) on receipt of notice of such an intended resolution, the
company shall forthwith send a copy of it to the director
concerned, and the director (whether or not he or she is a
member of the company) shall be entitled to be heard on the
resolution at the meeting; and
o (c) the company shall give its members notice of any such
resolution at the same time and in the same manner as it
gives notice of the meeting or, if that is not practicable, shall
give them notice of it, either by advertisement in a daily
newspaper circulating in the district in which the registered
office of the company is situated or in any other manner
allowed by this Act or by the constitution, not less than 21
days before the date of the meeting.
Types of Directors
1. Nominee Directors
Nominee directors are persons who are appointed to the board
of the company with a view to protecting or representing some
special interest
The nominee director may find himself in positions where
simultaneously under some obligation to a third party whilst
owing a duty to the company of which he is now a director.
2. Non-Executive Directors
The issue of delegation and supervision becomes particularly
pertinent in relation to nonexecutive directors within a
company.
A non-executive director is a director who is not involved in the
day to day business of the company. They usually adopt a more
advisory role and are appointed for their expertise and/or
experience which can help guide the direction of the company.
Two Irish cases are vital for their discussion of the role of non-
executive directors.
They arise in the context of restriction proceedings and are
discussed in detail in later. The two cases are Re Matter of
Tralee Beef and Lamb Ltd (in liquidation) and Re Mitek
Holdings.
3. Shadow Directors
A shadow director is someone who is not appointed to the board
of directors or is not manifestly involved in running the
business, but who nevertheless has a decisive say in managing
the company from a distance.
Section 221 of CA 2014 defines shadow directors. A body
corporate is not to be regarded as a shadow director of any of its
subsidiaries. A shadow director is "a person in accordance with
whose directions or instructions the directors of a company are
accustomed to act. Such a person shall be treated as a director
of the company unless the directors are accustomed to act in
accordance with their directions or instructions by reason only
that they do so on advice given by him or her (i.e. the alleged
shadow director) in a professional capacity".
A shadow director is someone who is not appointed to the board
of directors or is not manifestly involved in running the
business, but who nevertheless has a decisive say in managing
the company from a distance. It was thought that this person
should be equally amenable to the law as regular directors and
have the same duties as regular directors, and for that reason
the 1990 Act brought in a definition of shadow director (now
replaced by s 221 of CA 2014)
It must be shown that there is a well-established practice or
pattern of the company's director carrying out someone's
directions before he can be regarded as their shadow director.
As can be seen, an exception is made for persons who advise
directors in a professional capacity. The application of "shadow
directors" is very prominent in a number of different
circumstances, for example, in transactions involving directors
and the company, the restriction or disqualification of directors
and reckless and fraudulent trading.
In Ireland:
o Re Worldport Ireland Ltd (2005) – the Supreme Court
held that that a body corporate could not be a shadow
director for the purposes of a restriction application (i.e.
you can't restrict a corporate body having acting as a
shadow director). (The High Court had found that you
could). Persons who can be restricted does not extend to
corporate persons. Corporate persons cannot be directors
of companies, so it would be "meaningless and arguably
absurd", said Fennelly J, to restrict a corporate person -
because that would imply that a corporate person could be
a director of a company, as long as the capital
requirements were met by that company.
o Fyffes plc v DCC (2005) – the factors to be taken into
account were considered by Laffoy J in this case. It
involved a case of alleged insider trading in which it was
claimed that Mr Flavin was a shadow director of a
company called Lotus Green. DCC was a parent company
of Lotus Green. Mr Flavin was a director of DCC but not
an official director of Lotus Green. Thus, it was argued
that he was a shadow director of Lotus Green.
Laffoy J agreed that a person giving advice would be
deemed a shadow director. The directions emanating
from the alleged shadow director must have an
imperative quality. Sec 27 did not require that the
board should always act on the direction and
instructions for a shadow directorship to exist. The
word “accustomed” precludes this requirement. In
respect of directors who are so accustomed to act,
this refers to the board or the majority of directors.
Laffoy J concluded that Mr Flavin was not a shadow
director of Lotus Green. Whilst he did order them to
sell the shares, that was not sufficient to being him
within sec 27 of the Act
4. De Facto Directors
Section 222 defines de facto directors. A de facto director is "a
person who occupies the position of director of a company but who
has not been formally appointed as such director". Such a person
shall be treated, for the purposes of Part 5 of CA 2014, as a
director of the company (i.e. all the directors' duties set out in Part
5 apply to de facto directors). Just as in the case of shadow
directors, a person shall not be a de facto director of a company by
reason only of the fact that he or she gives advice in a professional
capacity to the company or any of the directors of it.
A person who is held out as a director by the company and purports
to act as a director, although never validly appointed as such, will
be deemed to be a de facto director of the company.
English cases:
Re Hydrodam (Corby) Ltd (1994) – Millet LJ distinguished
de facto from shadow directors. He said a de facto director
was someone who, whilst not formally appointed, undertook
functions in relation to the company which could be properly
discharged only if he was a director. These persons claim to
act as directors even though they have not been appointed.
However, shadow director claim not to be directors even
though they direct those who are the formally appointed
directors.
Secretary for Trade and Industry v Tjolle (1998) – Jacob
J stated the test for whether someone is a de facto director
will depend on a no of factors, including:
a) Whether the co held out the individual as director;
b) Whether the individual used the title director;
c) Whether the individual had proper information of the co
on which to base decisions;
d) Whether the individual was truly in a position to exercise
the powers of a director.
Duties of Directors
Directors will have duties arising in common law and equity. They
also have duties arising under statute. Over the years the courts
have recognised three main duties which directors owe and they
are now codified as Section 228 of CA 2014 which sets out the
principal fiduciary duties. You can now refer to them as the “S228
Duties” rather than the “Directors’ Common Law Duties”:
o Section 228 is a codification of the common law duties:
(1) the duty to exercise their powers bona fide and in
the interests of the company as a whole;
(2) the duty to exercise proper skill, care and diligence
in the discharge of their duties; and
(3) the duty to avoid conflicts of interests between the
director and the company.
3. Conflicts of Interest
Directors, as fiduciary agents, can be required to account for the
company for benefits which they have received as a result of
their position as directors. A director is bound to avoid a
situation where his own personal interests conflict with those of
the company. The case law can be categorised into 2 separate
sets of circumstances:
(I) Where the directors come across an opportunity by
virtue of his directorship in a co and takes that
opportunity for himself thereby taking a personal profit.
(II) Where the director enters into a transaction between
himself and the co, directly or indirectly, thereby
putting his interests at odds with the co.
However this exception will not apply where the director does
not inform the company of the opportunity in the first place.
o Gencor v Dalby (2000) – the MD of a group of companies
used the companies name and staff for the sale of 2 ndhand
equipment, the profits of which were to go to a co
controlled by him, he argued that the companies did not
deal in 2nd-hand equipment and therefore would not have
availed of the opportunity. The judge rejected this; the
exception does not apply where the director does not
inform the co of the opportunity.
Duties to Shareholders
Generally, a director may be taken to owe a duty to his
shareholders only where he assumes, expressly or impliedly, that
duty.
Coleman v Myers (1977) (NZ case) – the directors acquired
shares from shareholders who were family members. The directors,
by withholding information as to the value of the shares, had acted
in breach of their fiduciary duty. Woodhouse J stated that there can
be special circumstances where such a duty can be owed to the
shareholders. For example, where there was dependence by the
shareholders upon information and advice, the existence of a
relationship of confidence, the significance of some particular
transaction for the parties and the extent to which those directors
took positive action to promote that transaction. This approach was
expressly approved in Ireland by Keane J in Crindle Investment V
Wymes (1998).
o Courtney argues that the true authority of this case is that
directors are not automatically precluded from standing in a
fiduciary relationship to the shareholders, and where they are
the agents of the shareholders, on the facts, they may be in a
fiduciary position to them.
Duties to Creditors
It has been made clear in Ireland that in the case of an insolvent
company, the duty owed by the directors to the company is
effectively transposed into a duty to act in the interests of the
company’s creditors.
This principle can be traced back to the Australian decision below.
o Kinsella v Russell Kinsella Properties (1986) – Company
faced imminent collapse. The directors here leased the co’s
premises to themselves at an undervalue with an option to
purchase the premises below market valuation. They, as
shareholders, ratified the transaction. The co was then placed
into liquidation and the liquidator sought to have the
transaction set aside. The directors argued that even if there
was a breach of duty, the same was ratified by the
shareholders i.e. themselves. Street CJ rejected this and held
that where a company is insolvent the interests of the
creditor intrude. They become positively entitled through
liquidation to displace the power of the shareholders and the
directors to deal with the company’s assets.
Duties To Employees
Traditionally, the courts have not required directors to consider the
interests of employees.
o Park v Daily News (1962) – the directors, after selling the
business of the co, made gratuitous payments to the
employees, an action which the majority of the shareholders
approved. The Court of Appeal held that there was no
authority which supported the principle that directors were
entitled to consider the interest of the employees.
Section 224 – directors have vague duty to have regard for the
interests of the company’s employees in general. This was first
introduced in 1990, sec 52 of the Companies Act which imposed a
duty on directors to have regard to the interest of the co’s
employees.
However, this duty is only owed to the co itself and that is only
enforceable in the same way as any other fiduciary duty is owed to
the co. Thus, the net effect is that the directors are only required to
have regard to the interest of the employees. Even if they do fail to
do so, it is unlikely that they will be held to account unless the
employees can get the co to sue, for example, where the employees
were also shareholders and had sufficient voting power to influence
the actions of the co.
Apart from this example, the change regarding a duty to employees
being owed by directors is merely symbolic as the duty is
practically unenforceable.
(a) the person concerned has acted honestly and responsibly in relation to
the conduct of the affairs of the company in question, whether before or
after it became an insolvent company,
(b) he or she has, when requested to do so by the liquidator of the insolvent
company, cooperated as far as could reasonably be expected in
relation to the conduct of the winding up of the insolvent company, and
(c) there is no other reason why it would be just and equitable that he or
she should be subject to the restrictions.
In the past, the primary defence has been the first one—of acting
honestly and responsibly; s 819(2)(b) is new.
It has often been considered that the statutory make-up of s 819
casts the onus of proof upon the respondent director, thus they are
placed in the position of being automatically restricted, unless they
can satisfy one of the defences above.
In the Matter of Tralee Beef and Lamb Ltd (in liquidation)
(2008)– the comments of Hardiman J has perhaps opened the
constitutional arguments as to the fairness of this reversal.
The seminal case which sets out the criteria to be taken into
account when determining whether somebody has acted
irresponsibly is La Moselle Clothing Ltd (1998) – Shanley J said
that the court should have regard to the following 5 factors when
determining whether somebody has acted irresponsibly:
(1)The extent to which the director has or has not complied
with obligations imposed by the Companies Acts;
(2)The extent to which his conduct could be regarded as so
incompetent as to amount to irresponsibility;
(3)The extent of the director’s responsibility for the
insolvency of the company;
(4)The extent of the director’s responsibility for the net
deficiency in the assets at the date of winding up or
thereafter;
(5)The extent to which the director had displayed a lack of
commercial probity or want of proper standards.
Disqualification Jurisprudence
The SC in Re CB Readymix Ltd: Cahill v Grimes, the respondent
had purported to act as liquidator of a company but was never
formally appointed. In pursuance of a feud with the Revenue, he
dumped with a view to destruction all the company’s books and
records. He was disqualified for 7 years and this was upheld by the
Supreme Court.
o The SC adopted a passage from the English decision as a
proper approach of s.842 in re Lo-Line Motors Ltd (1988)
where Browne-Wilkinson VC stated that “the primary
purpose of the Section is not to punish the individual but to
protect the public against the future conduct…”
o Murphy J stated that an experience liquidator, which the
respondent claimed to be, should have appreciated the
importance of the records and was unfit to hold the office and
therefore upheld the disqualification order.
The English Courts have identified five types of conduct which will
more than likely call for a disqualification order:
o 1) Acquiring the assets of a company which was insolvent for
another company with which the same directors were
involved.
o 2) Failing to keep proper books of account or to make annual
returns even if there was no personal gain to the directors
responsible.
o 3) Gross incompetence.
o 4) Trading when there is no prospect of the company
surviving, i.e. recklessly.
o 5) Was the person involved in avoiding the payment of debts
to the Revenue? Re Cladrose stated that this was more
serious than the non-payment of ordinary debts. But in Re
Sevenoaks Stationers (Retail) Ltd it was held that while
same does not mean automatic disqualification, it is an
important factor.
Later English cases have suggested that the view that the power to
disqualify is purely for protective reasons has been diluted
somewhat. In Re Westmid Packing Services Ltd (1998) Lord
Woolf Mr said that the court should have regard to the gravity of
the conduct concerned but also to the importance of deterring
others from repeating the conduct.
Re Clawhammer Ltd (2005) – the DOCE brought a number of
disqualification applications for failing to file annual returns. Finlay
Geoghegan J stated that if the DOCE had produced the necessary
proofs showing that the directors had received a warning letter
from the Registrar informing them of the intention to strike off
unless returns were filed, then the respondent directors would be
disqualified unless they could offer exculpatory evidence in their
defence. In respect of a number of other directors, they had offered
evidence that after receiving the warning letter from the Registrar,
they had paid most of the creditors of the company.
o However, Finlay Geoghegan J pointed out that they still had
failed to submit certain annual returns and accounts, had
only paid trade creditors after the company ceased trading
but had not discharged debts owing to the Revenue
Commission. However, the respondent directors indicated
that, having regard to their circumstances, a declaration of
restriction for a period of five years would be more onerous
than an order for disqualification for a shorter period.
Accordingly, the court made an order for disqualification of
the respondents for a period of one year only.
Trusts on Shares
The EU AML IV and AML V, requires EU MS to oblige trusts to
establish registers of their beneficial owners and establish a central
register of beneficial ownership for trusts.
Section 66(6) states: Except as required by law, no person shall
be recognised by a company as holding any share upon any trust
and the company shall not be bound by or be compelled in any way
to recognise (even when having notice of it)—
o (a) any equitable, contingent, future or partial interest in any
share or any interest in any fractional part of a share; or
o (b) save only as this Act or other law otherwise provides, any
other rights in respect of any share, except an absolute right
to the entirety of it in the registered holder.
The Rules of the Superior Courts also provide a mechanism for the
beneficial owner of shares to protect their interests. Pursuant to
Order 46 of the RSC, a beneficiary can file a stop notice with the
Central Office at the High Court and then serve the notice on the
company. Once received, the company must notify the beneficiary
of any attempt by the legal owner to transfer the shares or to pay
the dividends and must delay the transfer or payment for 8 days to
allow the beneficiary to take steps to protect his position.
Re Sam Weller & Sons Ltd (1990) – it was held that there can
exist circumstances where no dividend has been paid for a long
period, without any reasonable justification, a court could be
justified in making an order under sec 212 for oppression.
A shareholder will, save for a claim for oppression, have no right to
a dividend until the dividend is declared and payable. However,
once this occurs, the shareholder may enforce his entitlement to
same in the normal way as any creditor would for a contractual
debt.
Liens on Shares
A company has a first and paramount lien on every share (not being
a fully paid share) for all moneys (whether immediately payable or
not) called, or payable at a fixed time, in respect of that share. The
directors can decide that this rule doesn't apply. A company's lien
on a share extends to all dividends payable on it. A company may
sell, in such manner as the directors of the company think fit, any
shares on which the company has a lien, but no sale shall be made
unless (1) a sum in respect of which the lien exists is immediately
payable; and (2) a notice in writing, stating and demanding
payment of such part of the amount in respect of which the lien
exists as is immediately payable, has been given to the registered
holder for the time being of the share, or the person entitled
thereto by reason of his or her death or bankruptcy; and a period of
14 days after the date of giving of that notice has expired.
Forfeiture of Shares
If a member of a company fails to pay any call or instalment of a
call on the day appointed for payment of it, the directors of the
company may, at any time thereafter (during such time as any part
of the call or instalment remains unpaid), serve a notice on the
member requiring payment of so much of the call or instalment as
is unpaid, together with any interest which may have accrued.
This notice has to specify two things: a further day, at least two
weeks' in the future, when payment is required; and it must state
that if the amount remains unpaid, the shares will be forfeited. If
the requirements of that notice are not complied with, any share in
respect of which the notice has been served may at any time day be
forfeited after the specified by a resolution of the directors of the
company to that effect.
A forfeited share may be sold or otherwise disposed of on such
terms and in such manner as the directors of the company think fit,
and at any time before a sale or disposition the forfeiture may be
cancelled on such terms as the directors think fit. If a forfeited
share is sold the company may receive the consideration, if any,
given for it. The company may execute a transfer of the share in
favour of the person to whom the share is sold or otherwise
disposed of (the "disponee"). Once this happens, the disponee is
registered as the holder of the share.
Preference Shares
A preference share is effectively an ordinary share but which is
preferred in relation to a particular right. The preferment usually
relates to rights as regards dividends or the return of capital.
Preference shares are attractive to the extent that they guarantee a
degree of income and capital security.
The exact rights and liabilities of preference shareholders will
entirely depend on the company's memorandum and articles of
association (in the case of a DAC), or its constitution (in the case of
a company limited by shares), in resolutions passed and on the
terms in which the shares were issued.
9. Shares
Definition of a Share
Courtney defines a share as an intangible accumulation of
rights, interests and obligations.
Generally, private companies will issue share certificates to their
members which states how many shares the person has registered
in his name and how much is paid up on them. Important to note
that the certificates are only evidence of their contents and
evidence of ownership of the shares.
Ultimately, it is difficult to give an exact definition of shares.
However, there are a number of legal features by which a share
can be recognised. Those are as follows:
Allotment Of Shares
There are 3 ways in which a person could become a shareholder.
First, they could be allotted new shares. Second, shares could be
transferred to them. Thirdly, they may receive shares by way of
transmission, which usually happens on the death of a shareholder.
In this section, we examine the allotment of shares.
The Power to Allot Shares
Section 66 of CA 2014 deals with shares.
o A company may allot shares—(a) of different nominal values;
(b) of different currencies; (c) with different amounts payable
on them; or (d) with a combination of 2 or more of the
foregoing characteristics. Without prejudice to any special
rights previously conferred on the holders of any existing
shares or class of shares, any share in a company may be
issued with such preferred, deferred or other special rights
or such restrictions, whether in regard to dividend, voting,
return of capital or otherwise, as the company may from time
to time by ordinary resolution determine. A company may
allot shares that are redeemable ("redeemable shares").
Allotment of shares is specifically dealt with in s 69 of CA 2014.
That section states that no shares may be allotted by a company
unless the allotment is authorised, either specifically or pursuant to
a general authority, by ordinary resolution or by the constitution of
the company.
Save to the extent that the constitution of the company provides
otherwise— (a) shares of a company may only be allotted by the
directors of the company; (b) the directors of a company may allot,
grant options over or otherwise dispose of shares to such persons,
on such terms and conditions and at such times as they may
consider to be in the best interests of the company and its
shareholders.
Any director of a company who knowingly contravenes, or
knowingly permits or authorises a contravention of, any of the
aforementioned provisions is guilty of a category 3 offence.
Directors must make the allotments in a bona fide way, and with
the good of the company in mind. Put another way, they cannot
allot shares for an improper purpose (such as to prevent a take-
over bid).
Pre-Emption Clauses
A company's constitution might contain provisions which (a)
require that the company, when proposing to allot shares of a
particular class, shall not allot those shares unless it makes an offer
of those shares to existing holders of shares of that class; and (b)
specify that the minimum period during which that offer may be
accepted is not less than 14 days. That is permissible. Put another
way, the Act recognises pre-emption rights.
3. Placing
This involves a financial intermediary acquiring the shares and
then selling blocks of the shares to a small number of institutions
such as bank, insurance companies, pension funds etc.
The Prospectus
Where shares are being offered to the public for the first time, the
law requires the publication and filing of a prospectus. The purpose
behind this is to ensure greater security for the public from fraud
and improper practices within the market. The law in this area is
dealt with in Part 23 of CA 2014.
A prospectus is defined as "the document or documents required to
be publish for the purposes of a public offer or admission to trading
in accordance with EU prospectus law and includes where the
context admits any supplement thereto."
In addition, a public offer is defined as "a communication to
persons in any form and by any means, presenting sufficient
information on the terms of the offer and the securities to be
offered, so as to enable an investor to decide to purchase or
subscribe for those securities".
No offer of securities to the public may be made in Ireland without
the publication of a prospectus. Regulation 19.1 of the Irish
prospectus regs provides that "a prospectus shall contain all
information which, according to the particular nature of the issuer
and of the securities offered to the public or omitted to trading, is
necessary to enable investors to make an informed assessment of-
a) the assets and liabilities, financial position, profit and losses, and
prospects of the issuer and of any guarantor; and b) the rights
attaching to such securities".
Regulation 32 of the Irish prospectus regs provides that the
persons responsible for the prospectus are to be clearly identified
in the prospectus. It must also contain declarations by those
persons that, to the best of their knowledge, the information
contained in the prospects is in accordance with the facts and that
it makes no omission likely to effect its import, save information
omitted in accordance with the regulations.
Regulation 9 of Irish prospectus regs provides for exemptions from
the obligation to publish. Included in these exemptions are offers
addressed solely to qualified investors, such as credit and financial
institutions and offers addressed to less the 100 persons.
Furthermore, a prospectus is not required where the minimum
consideration payable is at least €50,000 per investor or where the
offer expressly limits the amount of the total consideration to less
than €100,000.
Section 1353 of CA 2014 prohibits the publication of a statement
made by an expert in the prospectus unless the expert has given
his consent in writing to the publication of the statement. Every
person who is knowingly a party to the issuing of a prospectus in
breach of this requirement is guilty of an offence.
Pre-Emption Rights
We have already seen that a pre-emption right is a right of existing
shareholders to be offered a transfer of shares before those shares
can be offered to an outsider. Pre-emption clauses are usually
found in the company's articles or in shareholder agreements, and
each clause will differ depending on its wording. Generally, the
courts will strictly interpret the wording of a pre-emption clause
o Safeguard Industrial Investments v National
Westminster Bank Ltd (1982) – pre-emption rights
attached to regular inter-vivos transactions. The question
arose as to whether a pre-emption clause would also apply to
a transmission of shares in a will. The court held that the
clause would be interpreted strictly and would not apply to
such transmission on death.
o The courts will be quick to enforce pre-emption rights, and
usually a pre-emption right can defeat a contractual right to
the share. Lee and Company v Egan (1978) – Mr Roe had
agreed to sell his shares in the company to a Mr Conroy, who
was not a shareholder. After the agreement was entered into,
both parties realise that pre-emption rights attached to the
shares. A dispute arose and Conroy sought specific
performance of the contract, saying that despite the
existence of pre-emption rights, he had a contractual right to
the shares and this took precedence over the pre-emption
rights. The court disagreed and stated that Roe must first
send notice to the other shareholders offering to sell the
shares at the price that Conroy offered. If, after a set period
there was no acceptance, then Conroy could enforce the
contract.
o There is conflicting authority on whether a pre-emption
right will attach to beneficial interest in shares. Old
authorities suggest that the restriction did not go this far.
However, in Phelan v Goodman (2001) – Murphy J stated
that the pre-emption rights guaranteed by the articles of the
company were breached by an agreement that involved the
transfer of the beneficial ownership of the shares.
The most common order which the court will make under s 212(3)
(c) is an order that the oppressed members shares be bought out,
either by the oppressors or by the company, at a fair price.
o In Greenore Trading Co, an element was built into the price
to compensate for losses that the oppressed member
previously suffered. Indeed, it is possible for the court to
order that the oppressors sell their shares to those who were
being oppressed, but an order of this nature would be made
only in very unusual circumstances.
o In Bird Precision Bellows Ltd, it was held that when the
court orders the purchase of shares, the court does not have
to apply the normal market price as determined by ordinary
valuation principles. Rather, it entirely depends on the
circumstances. The court held that an innocent minority
shareholder should not be unfairly prejudiced or penalised by
compelling him to sell his shares at a discount from the pro-
rata price or by having to pay a premium in buying out the
majority shares. This approach was endorsed by O'Hanlon J
in Re Clubman Shirts (cited above).
Locus Standi
Clearly, locus standi is given to "any member of a company".
Section 212(8) also gives standing to (a) the personal
representative of a person who, at the date of his or her death, was
a member of a company, or (b) any trustee of, or person
beneficially interested in, the shares of a company by virtue of the
will or intestacy of any such person.
So, the references to a "member" in s 212 is to be read as including
a reference to any personal representative, trustee or person
beneficially interested in the shares. It was held by the Supreme
Court in Re Via Networks Ltd, that where a person has agreed to
sell his shares in a company but remains on the register until the
sale has been completed, he does not have locus standi to bring s
212 proceedings. This was, according to the Supreme Court,
because the legislature had not envisaged that persons without any
interest in the company would be entitled to present a petition
grounding on alleged oppression.
Re Sam Weller & Sons Ltd (1990) – it was stated in this context
that – “the word interest is wider than a term such as rights, and its
presence suggests that parliament recognised that members may
have different interests, even if their rights as members are the
same”. In this case, the petitioners complained that for many years
a derisory dividend was being paid even though the company had
abundant reserves to make much higher dividends. It was held that
this could amount to oppression and therefore this claim would not
be struck out for showing no cause of action.
Ultra Vires
The rationale behind the rule in Foss is that the minority of
shareholders cannot take action on behalf of the company where a
wrong is done to the company because the majority who control the
company do not agree such an action should be taken.
The rationale behind the rule in Foss falls down where the views of
the majority become irrelevant, for example, where the company is
or had been compelled to engage in ultra vires activity.
Where a company acts ultra vires, such an action cannot be ratified
or approved by the shareholders as it is outside the company’s
objects.
Not currently applicable to private co. limited by shares.
Secured Debentures
Unless a loan is secured, the lending institution will be in the same
position as all other unsecured creditors if the company goes
insolvent and into liquidation.
The essence of the concept of “security” is that the holder of the
security is entitled to look at certain assets which will satisfy the
debt which the company owes in case the company cannot satisfy
that debt. Generally, there are 4 types of security which companies
will create in favour of banks:
(1)A pledge;
(2)A lien;
(3)A mortgage, and
(4)A charge (most important for this course)
(1) A Pledge
A pledge is a transaction under which a debtor delivers possession
of goods to his creditor to be retained by the creditor for as long as
the debtor has unsatisfied obligations to the creditor. A pledge
confers a power of sale upon the creditor in the event of the debtor
defaulting.
(2) Liens
A lien is a form of possessory security. A lien is a right given to a
person who is in possession of goods belonging to another person
where that first person has provided services and is entitled to
retain possession until he is paid for those services. The primary
difference between a lien and a pledge is that in the case of a
pledge, the owner delivers the possession of the goods to the
creditor for the purposes of security. With the lien, the creditor
retains possession of the goods which have been delivered to him
for a different purpose. This was held by Millett LJ in Cosslett
(Contractors) Ltd.
(3) Mortgages
Mortgages can be subdivided into legal mortgages and equitable
mortgages. The essence of each type of mortgage is that it involves
a transfer of ownership of either a legal or an equitable interest.
A legal mortgage involves the formal conveyance, assignment of
demise of the legal title to real property or personal property which
is specifically identifiable at the time of creation of the mortgage.
The mortgagee becomes the legal owner of the mortgaged
property. The mortgagor will have an equity of redemption which
gives him the right to recover the property on repayment.
An equitable mortgage involves the transfer of the equitable
interest in the property. And can be created either formally or
informally. A formal equitable mortgage involves the conveyance,
assignment or demise of the equitable title in the mortgaged
property. An informal equitable mortgage typically involves the
deposit of the title deeds of real or personal property that is
specifically identifiable.
Priority Of Charges
The day the charge is created is not the day which matters most
anymore. The relevant date for priority purposes is the day the
Registrar receives the particulars (if a party is using the two-stage
procedure then it is the date of the receipt of the intention to
create a charge that is relevant).
If a number of charges are registered on the same day, the earliest
in time has priority.
The Registrar keeps a register, in relation to each company, of the
charges requiring registration, and on payment of a fee, enters in
the particulars relating to each charge in the register. Whenever a
charge is registered, the Registrar gives a certificate of the
registration to the company.
The certificate is "conclusive evidence" that the requirements of
registration have taken place.
o The rationale behind this was elaborated upon in Re CL Nye
Ltd, where Hamilton J stated that the conclusiveness of
registration was to give security to persons relying on the
certificate. If it were possible to go behind the certificate and
show that the date of creation of the charge meant the
charge was not registered within time, then no lender on the
face of the charge could be secure and sure that it would not
be thereafter attacked by somebody else.
Aggregation Clauses
Clauses which attempt to retain title or to confer some form of
interest on the vendor over future manufactured goods are known
as aggregation of title clauses or enlarged retention of title clauses.
When these clauses are sued, and the goods are irreversibly mixed,
the question arises as to the nature of the interest the seller has in
the mixed or manufactured finished product. (Borden UK case)
Re Charles Dougherty – Carroll J commented that a seller can
make an effective retention of title clause to goods prior to
manufacture but if one requires security over the manufactured
goods this would require a buyer granting a proprietary interest
back to the seller. However, a transaction of this nature could only
amount to a charge and therefore would require registration.
The rationale behind the above analysis is that it would be illogical
for the seller to be able to claim that they in fact own manufactured
goods. Rather the buyer is granting back to the seller a proprietary
interest whereby the seller is entitled to use the manufactured
goods to satisfy the debt he is owed if that debt is not satisfied.
Thus, it is a form of security which in most circumstances will
require registration.
Different considerations will apply where the goods subject to the
retention of title clause can still be identified. See the case below.
o Hendy Lennox v Graham Puttick Ltd (1994) – diesel
engines were sold subject to a retention of title clause and
these were incorporated by the purchaser into electrical
generating sets. When the company went into receivership,
the vendor sought an injunction preventing the sale of the
diesel engines. The courts stated that although the engines
had been mixed into the generating set, they are still capable
of being readily identified as they could be removed.
14. Liquidation
A company may have its legal existence cut short in two ways. First
way is being wound up. The second way is being struck off the
register.
The expression “winding up” refers to the process by which a
company is broken up bit by bit until it is ultimately dissolved and
removed from the register of companies.
There may be many reasons for the winding up of a company, for
example, the company may be insolvent, the members may no
longer be able to work together, the company may have served its
purpose.
Where a company is being wound up for reasons of insolvency, the
assets of the company are collected by an officer (known as a
liquidator) and distributed among the creditors. Some creditors
such as the Revenue are entitled to priority for some of their debts
over the other creditors.
In an insolvent liquidation, the liquidator may apply to the court for
directions in relation to the various priorities that subsist between
different types of creditors. In addition, the court may be called up
to investigate the conduct of the directors and decide whether any
such officer should be fixed with personal liability.
Winding up is dealt with in Part 11 of CA 2014. It is essential
to realise that there are 2 main forms of winding up:
(1)Voluntary winding up
(2)Compulsory or official winding up
(a) summon a meeting of creditors for a day not later than the
14th day after the day on which he or she formed that
opinion,
(d) during the period before the day on which the creditors’
meeting is to be held, furnish creditors free of charge with
such information concerning the affairs of the company as
they may reasonably require.
(a) if the company has by special resolution resolved that the company
be wound up by the court,
(b) if the company does not commence its business within a year after
the date of its incorporation or suspends its business for a
continuous period of 12 months,
(c) if the members of the company are all deceased or no longer exist,
(e) if the court is of the opinion that it is just and equitable that the
company should be wound up,
(f) if the court is satisfied that the company’s affairs are being
conducted, or the powers of the directors are being exercised, in a
manner oppressive to any member or in disregard of his or her
interests as a member and that, despite the existence of an
alternative remedy, winding up would be justified in the general
circumstances of the case but court may dismiss a petition to wind
up a company if it is of the opinion that proceedings under s 212
would be more appropriate.
Power Of Court
On the hearing of a winding-up petition, the court may (a) dismiss
the petition, or (b) adjourn the hearing conditionally or
unconditionally, or (c) make any interim order, or any other order
that it thinks fit.
The Court won’t wind a company up unless it is satisfied the
company has no NAMA obligations or, if it does, that NAMA is on
notice and has been heard.
As stated above, the court may order that the company be wound
up as if it were a members’ voluntary winding up; it may do so
based on a ground referred to in paragraph (a), (b), (c), (e) or (f) of
section 569 (1) (above). If a petitioner does not proceed with his or
her winding-up petition, the court may, upon such terms as it shall
deem just, substitute as petitioner any person who would have a
right to present a petition in relation to the company, and who
wishes to proceed with the petition.
The court may appoint a liquidator provisionally at any time after
the presentation of a winding-up petition and before the first
appointment of a liquidator. Section 575 gives the Court power to
appoint a liquidator or liquidators, for the purpose of conducting
the proceedings in winding up a company.
At any time after the presentation of a winding-up petition, and
before a winding-up order has been made, the company or any
creditor or contributory may apply to court for a stay on any action
which is against the company and which is pending in the’ High
Court or on appeal in the Supreme Court. If any other action is
pending against the company, the stay can be applied for in the
High Court. The Court can “stay or restrain the proceedings
accordingly on such terms and for such period as it thinks fit.”
Conduct Of Winding Up
Commencement of court ordered winding up
The winding up of a company by the court is deemed to commence
at the time of the presentation of the winding-up petition in respect
of the company.
Where, before the presentation of a winding-up petition in respect
of a company, a resolution has been passed by the company for
voluntary winding up, then, despite the fact that that petition is
granted, the winding up of the company shall be deemed to have
commenced at the time of the passing of the resolution. All
proceedings taken in a voluntary winding up shall be deemed to
have been validly taken, unless the court, on proof of fraud or
mistake, thinks fit to direct otherwise.
A voluntary winding up is deemed to commence at the time of the
passing of the resolution for voluntary winding up.
If the court orders a winding up, an officer of the court will furnish
the CRO with the details of the order and a copy of the order must
be served by the petitioner (or such other person as the court may
direct) on the company at its registered office.
In a voluntary winding up, the liquidator of the company must
deliver to the CRO a notice of his or her appointment within 14
days after the date of his or her appointment. Failure to do this is a
category 4 offence.
Where the court has made a winding-up order or appointed a
provisional liquidator in relation to a company, then unless the
court thinks fit to order otherwise, part of the order will state that a
statement as to the affairs of the company must be made out and
filed and verified by affidavit. This statement must show, among
other things, particulars of the company’s assets, debts and
liabilities; the names, residences and occupations of the company’s
creditors; the securities held by those creditors respectively, and
the dates when those securities were respectively given. The
statement should be filed and verified by the directors, within 21
days of the order.
From then on, every invoice, order for goods or business letter
issued by or on behalf of a company that is being wound up, or a
liquidator of such a company, must contain a statement that the
company is being wound up. The same applies to any website of the
company, any emails sent by it to third parties. Upon the
appointment of a liquidator to a company, the liquidator takes into
his or her custody or under his or her control the seal, books and
records of the company, and all the property to which the company
is or appears to be entitled. Anyone who has these documents must
hand them over to the liquidator.
(a) First — In the case of a winding up by the court, the costs of the
petition, including the costs of any person appearing on the petition
whose costs are allowed by the court;
(c) Next — The costs and expenses necessarily incurred in and about
the preparation and making of, or concurring in the making of, the
statement of the company’s affairs and the accompanying list of
creditors and the amounts due to them;
(e) Next — The costs payable to the solicitor for the liquidator;
(i) all local rates due from the company at the relevant date and
having become due and payable within the period of 12 months
before that date;
(ii) each tax assessable on, in relation to, or by the company under
the Taxes Consolidation Act 1997 in respect of, or apportioned on a
time basis to, a period ending on or before the relevant date, for
which the tax concerned is due and payable, but the particular
period (in respect of which priority under this subparagraph for the
tax concerned is claimed) shall not be of more than 12 months’
duration;
(iii) any amount due at the relevant date in respect of sums which
an employer is liable under Part 18D or Chapter 4 of Part 42 of the
Taxes Consolidation Act 1997 and regulations thereunder to deduct
from emoluments to which that Part or Chapter applies paid by that
employer during the period of 12 months next ended on or before
the relevant date reduced by any amount which that employer was
under that Part or Chapter and regulations thereunder liable to
repay during that period, with the addition of interest payable
under section 991 of that Act;
(iv) any tax and interest for which the company is liable under the
Value-Added Tax Consolidation Act 2010 in relation to taxable
periods which shall have ended within the period of 12 months next
ended before the relevant date;
(v) any local property tax that the company is liable to remit to the
Revenue Commissioners under section 74 of the Finance (Local
Property Tax) Act 2012 during the period of 12 months next ended
before the relevant date and any interest payable in relation to that
tax under section 149 of that Act;
Liquidators
The duty of a liquidator set out in s 624 is to “administer the
property of the company to which he or she is appointed.”
This means ascertaining the extent of the property of the company
and as appropriate: the collection and gathering in of the
company’s property; the realisation of such property; and the
distribution of such property in accordance with law.
The duties of a provisional liquidator are those duties provided in
the order appointing him or her or any subsequent order of the
court. Where a provisional liquidator is appointed by the court.
Then the provisional liquidator has such powers as the court
orders. Where a provisional liquidator is appointed by the court,
the court may place’ such limitations and restrictions upon the
powers of any other officers of the company as it thinks fit.
The liquidator’s powers are set out in s 627. A non-exhaustive list
follows:
o Legal proceedings, carrying on company’s business, etc.
Power to— (a) bring any action or other legal proceeding in
the name and on behalf of the company; (b) defend any action
or other legal proceeding in the name and on behalf of the
company; (c) recommence and carry on the business of the
company so far as may be necessary for the beneficial
winding up thereof, where such business was not continuing
at the date of the appointment of the liquidator or had ceased
after such appointment; (d) continue to carry on the business
of a company so far as may be necessary for the beneficial
winding up thereof, where such business was continuing at
the date of the appointment of the liquidator and had not
subsequently ceased; (e) appoint a legal practitioner to assist
the liquidator in the performance of his or her duties.
o Payment of certain creditors, compromise of certain claims,
etc Power to— (a) pay any classes of creditors in full; (b)
make any compromise or arrangement with creditors or
persons claiming to be creditors or having or alleging
themselves to have any claim present or future, certain or
contingent, ascertained or sounding only in damages against
the company, or whereby the company may be rendered
liable.
o Ascertainment of debts and liabilities, sale of property, etc.
Power to (a) ascertain the debts and liabilities of the
company; (b) sell the property of the company by public
auction or private contract, with, for the purposes of this
subparagraph, power to— (i) transfer the whole of the
property to any company or other person; (ii) sell the
property in lots, and, for the purpose of selling the company’s
land or any part of it, to carry out such sales by grant,
conveyance, transfer, lease, sublease, or otherwise, and to
sell any rent reserved on any such grant or any reversion
expectant upon the determination of any such lease.
o Power to obtain credit, whether on the security of the
property of the company or otherwise.
o Power to— (a) take into his or her custody or under his or her
control all the property to which the company is or appears to
be entitled; (b) dispose of perishable goods and other goods
the value of which is likely to diminish if they are not
immediately disposed of; (c) do all such other things as may
be necessary for the protection of the company’s property.
o Power to do all such other things as may be necessary for
winding up the affairs of the company and distributing its
property.
Proving Insolvency
The first difficulty which a creditor faces when bringing this type of
application is to prove that the company is in fact insolvent. In this
regard, see s 570 of CA 2014 (above). The main circumstances in
which a company would be deemed to be enabled to pay its debts is
if a creditor is owed an amount in excess of €10,000 and has served
a letter at the company’s registered office demanding that the
company pay the sum due within three weeks.
Even if it can be proved that the company is unable to pay its debts,
there is no automatic right to a winding up order. The court retains
a discretion in this regard.
This can be seen from the case of Meridian Communications Ltd
v Eircell,
o where Eircell was owed several million pounds by Meridian
and brought a petition to have them wound up. Meridian
attempted to resist the petition and claimed that, first, it did
not owe Eircell the amount alleged and, second, that it
wished to sell its remaining assets in order to pay of its
creditors and then voluntarily wind up the company.
o McGuinness J in the Supreme Court said that the petition
could not be dismissed as the entire amount was not
disputed. However, she considered that it was just and
equitable to give Meridian time to allow to sell all its assets
and then voluntarily put the company in to liquidation. She
held that this was in the interests of the petitioner, the
company and also the general body of creditors. In those
circumstances Eircell was restrained from presenting the
petition.
Another example of this discretion in operation can be seen in the
case of re Genport,where it was established that the company was
insolvent and was unable to pay its debts. Despite this, however,
the judge held that he would not allow the creditors to petition to
have the company wound up on the basis that the company’s
primary asset was a lease it held in Sach’s Hotel and that lease
contained a forfeiture clause. The result of the forfeiture clause
was that if the company was wound up the lease would have to be
surrendered back to the landlord, resulting in the company being
stripped of its primary assets. In those circumstances the court
refused to grant the winding up order and it was significant in this
regard that other creditors of the company had opposed the
petition.
It has also been held that a company can be wound up on the just
and equitable ground where there is complete deadlock between
the shareholders. In these circumstances the activities of the
company can be paralysed, to the detriment of both the members
and the creditors. In the Irish case re Vehicle Buildings and
Insulations Ltd, two equal shareholders were unwilling to
cooperate with each other and Murphy J spoke of the objective fact
that the shareholders could not legally nor practically administer
the company without the cooperation of each other, and therefore
the business had to be wound up.
Priorities on Distribution
The liquidator must distribute the assets in accordance with said
priorities. We have considered this above. In general, the main
priorities in respect of distribution are as follows:
o ROT clauses
o property held on trust
o set-off
o fixed charges
o Super preferential debts that are trust monies
o The costs and expenses of winding up
o Preferential creditors
o Fixed charges over book debts
o Floating Charges
o Unsecured Creditors
o Members and Contributories
Briefly, some of the foregoing topics which have not been looked at so far
in this chapter (or course) are set out here:
Property held on trust: Property that is not beneficially owned by
a company is not available for distribution by the liquidator.
Accordingly, when properties are held by the company in trust, the
beneficial owner is entitled to the property and does not have to
prove with other creditors. In Re Shanaghans Stamp Auctions
Ltd it was found that where a company held postage stamps in
trust for the investors, the investors were entitled to the stamps as
of right and did not have to prove in the winding up of the
company.
Super preferential debts that are trust monies : PAYE and PRSI
employment contributions that have actually been deducted from
employees’ remuneration or which have not been paid over to the
Revenue Commissioners are deemed to have a “super
preferential” status. This is by virtue of s 16(2) of the Social
Welfare (Consolidation) Act 1993. The effect of this provision is to
create a statutory trust on certain monies in the company’s
possession of which the Revenue Commissioners are deemed to the
beneficial owners.
Restoration of a company
S. 737 lays down grounds for restoring a company that is dissolved
or struck off the register
In any other grounds, application to court under s. 738(1) and
satisfies its condition.
The notice provision of 738 and 739 must be complied with.
Just and equitable will vary from case to case
In the matter of Allenton Properties Limited, the court
considered the matter of an application under s. 738 to restore the
named company to the Register of companies so that the applicant
might appoint a receiver to enforce a security over the company.
o The court considered the just and equitable requirement and
put the onus on the applicant to satisfy the court that the
order it seeks is fair and proportionate to all whose rights
and interests may be affected by such restoration.
o In this case, the application was refused in light of the
potential prejudice to a third party, namely the purchaser.
Once a company is put back in the register, it is deemed to have
continued in existence throughout the period during which it was
struck off. In Re Amantiss Enterprises, it was held that a
restoration order has retrospective effect and therefore all acts
done in the name or on behalf of the company during its dissolution
and restoration are retrospectively validated.
Post-Commencement Dispositions
The property of a company at its winding up must be applied
in satisfaction of its liabilities pari passu.
The central principle behind this is that on liquidation all assets
which belong to the company at the commencement of the winding
up should be applied and distributed in accordance with the
priority determined by law.
As we have already seen, the commencement of a winding up is
deemed to occur at the time of the presentation of the petition in
an official winding up.
If there is a disposition of assets after this point in time then,
pursuant to s 602 of CA 2014, that disposition will be deemed to be
void unless the court otherwise orders.
Section 602(1) states: This section applies to each of the following
acts in any winding up of a company: (a) any disposition of the
property of the company; (b) any transfer of shares in the company;
or c) any alteration in the status of the members of the company,
made after the commencement of the winding up.
Section 602(2) says that any of the above “shall, unless the court
otherwise orders, be void” if they were done without the sanction
of the liquidator of the company. Nothing in section 602 makes a
person who does an act which is rendered void by s 602 liable for
doing the act, if it was done by the person at the request of the
company, unless it is proved that, prior to the person’s doing the
act, the person had actual notice that the company was being
wound up. If a company that is being wound up makes a request of
a person to do an act that is prohibited by s 602 and the company
does not, at or before the time of making the request, inform the
person that it is being wound up, the company and any officer of it
who is in default is guilty of a category 2 offence.
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