We recently discussed the establishment of the Corporate Enforcement Authority (CEA) with effect from 7 July 2022, and the commencement of the Companies (Corporate Enforcement Authority) Act 2021 (CEA Act). With the commencement of the CEA Act, some insolvency-related amendments to the Companies Act 2014 (CA 2014) are now in force.
The ODCE published its 2021 annual report in June of this year, which recorded a substantial reduction of 39% in insolvent liquidations during 2021. Ian Drennan, former Director of the ODCE (now CEO of the CEA), attributed the fall to several factors, including creditor forbearance, various State supports provided during the Covid-19 pandemic and the interim changes to the definition of what constitutes a company being deemed “unable to pay its debts”, which has been extended to 31 December 2022 (see our previous update here).
It is anticipated that this downward trend in insolvent liquidations will begin to rise again in the coming years.
Section 34 of the CEA Act
Relevant to this anticipated rise in insolvent liquidations is the now amended section 819 of the CA 2014 on the restriction of directors of insolvent companies. Section 34 of the CEA Act amends section 819 by adding new grounds for applications to court by the CEA, liquidator, or receiver to restrict a director. These additional grounds include the failure by a director of an insolvent company to:
- convene a general meeting of shareholders for the purpose of nominating a named liquidator,
- table a notice to nominate such liquidator, or
- provide the required notice to employees of the company in the winding up of the company.
The first two of these grounds arise from a 2017 Company Law Review Group report on the protection of employees and unsecured creditors (Report). The Report recommended the changes to address difficulties where directors of companies walk away without putting a company into liquidation, or without a liquidator being appointed.
Additional insolvency-related changes to the CA 2014, following the commencement of the CEA Act, include:
- the CEA has power to request evidence from a person that they are qualified to act as liquidator of an Irish company (section 32 CEA Act);
- restoration of the obligation to file resolutions with the CRO in a creditors’ winding-up (section 31 CEA Act); and
- if a liquidation is not concluded within 12 months after commencement, a liquidator may be required to file more frequent reports to the CRO on the progress of the liquidation (section 33 CEA Act).
We will continue to keep you apprised of developments relevant to your business. To discuss these insolvency-related developments further, please contact Fergus Doorly, Craig Sowman or Ruairi Rynn or any member of our Corporate Restructuring & Insolvency Team.
Contributed by Áine Murphy & Gail Nohilly