by Jeremy Erwin September-04-2024 in Commercial & Business, Insolvency & Restructuring
The Employment (Collective Redundancies and Miscellaneous Provisions) and Companies (Amendment) Act 2024 (the “2024 Act”) was commenced by the Oireachtas in July 2024. The 2024 Act introduced a number of measures and amendments to Part 11 of the Companies Act 2014 (the “2014 Act”) with a view to strengthening the powers of the High Court in the context of applications relating to the realisation of assets in an insolvent winding-up.
Section 599 – Contribution by related company on an insolvent winding-up
Section 599 provides that a liquidator or creditor of an insolvent company that is being wound up may apply to the High Court, and the court may make an order if it is just and equitable to do so, that a related company shall pay to the liquidator an amount equal to all or part of the debts due by the insolvent company. In deciding whether it is just and equitable to make that order, the court is required to have regard to three matters:
- The extent to which the related company took part in the management of the company being wound up;
- The conduct of the related company towards the creditors of the company being wound up; and
- The effect which such an order would be likely to have on the creditors of the related company concerned.
The 2024 Act introduced two further considerations which the court shall have regard to and those are as follows:
- The extent to which the circumstances that gave rise to the winding up of the company are attributable to the acts or omissions of the related company; and
- Such other matters as the court considers appropriate.
Importantly, section 599(6) provides that simply because two companies are related does not entitle a liquidator or creditor to look to the related company. The court must first be satisfied that the companies are related within the meaning of the 2014 Act, and that it is just and equitable to order a related company to pay the debts of the company being wound-up, on the basis of the now broader factors the court is required to have regard to.
Section 604 - Unfair Preference
Section 604 is designed to prevent a company from preferring particular creditors or disposing of its assets in favour of a creditor of a company with a view to giving that creditor a preference over other creditors of the company, prior to an insolvent winding up. The 2014 Act provided that such transactions would be invalid if: (i) the winding up of the company commenced within six months after the date of the preference; (ii) the company was at the time of the commencement of the winding up unable to pay its debts as they fell due; and (iii) in the case of a connected person any such transaction was invalid if it took place within a period of two years before the commencement of the winding up of the company.
The 2024 Act has again strengthened the provisions of Section 604 and both the six month and two-year lookback periods have now been extended to “such longer periods that the court considers just and equitable having regard to the circumstances of the act concerned”.
While the amendments introduced by the 2024 Act provide greater protection for creditors as a whole, the absence of a defined lookback period introduces a level of uncertainty, and it will be for the courts to interpret what extended lookback period is considered just and equitable having regard to all the circumstances of the transaction.
Section 610 - Reckless Trading
Section 610 provides that if it appears in the course of the winding up of a company, an examinership or a SCARP process, that an officer of the company was carrying on the business of the company (i) in a reckless manner, or (ii) was knowingly carrying on the business of the company with an intention to defraud creditors of the company or any other person, or (iii) for any other fraudulent purpose, the court has the power to declare that officer, without any limitation of liability to be personally liable for all or part of the debts of the company being wound up. The amendments introduced by the 2024 Act provide that where it appears to the court that the officer took such steps as were reasonably practicable with a view to minimising such loss as he ought to have taken, a court may relieve the officer in whole or in part from personal liability. This puts on a statutory footing an objective test for personal liability for fraudulent or recklessness trading, bringing Section 610 in line with the established case law to date. It also specifically provides that the relevant officer of the company may be relieved from liability if, objectively, the steps that she / he took were appropriate in the circumstances.
These amendments introduced by the 2024 Act strengthen and copper fasten the powers of the courts on insolvent windings up for the benefit of creditors. It will be interesting to watch the development of the case law on the topic, particularly the interpretation on what is a just and equitable lookback period for the purposes of a transaction said to be an unfair preference.
For further information in relation to this article or broader insolvency matters, please contact Jeremy Erwin, Partner.
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About the Author
Jeremy Erwin
Jeremy specialises in insolvency, commercial litigation and dispute resolution, acting for a variety of companies and financial institutions in contract law cases, enforcement and recovery actions and in high value complex Commercial Court proceedings. Jeremy also specialises in intellectual property matters, including advising on registration and protection of trade marks and related rights and on trade mark disputes.