T H E LAW OF COMPANY
INSOLVENCY
(2ND EDITION)
MICHAEL FORDE
B.A. (Mod.) and LL.B (Dublin), LL.M (Brussels), Ph.D. (Cantab.), of King's Inns and Middle Temple Senior Counsel
HUGH KENNEDY
A.B. (Princeton), of King's Inns, Barrister-at-Law
and
DANIEL SIMMS
B.A. (Mod.)(Dub.), LL.M, Dr. iur (Cologne), of King's Inns, Barrister-at-Law
TABLE OF CONTENTS
Foreword. v Préface vii Table of Cases xix Table of Législation xlvii
CHAPTER 1 INTRODUCTION 1
HlSTORICAL CONTEXT 1
Personal bankruptcy 2 Deed of settlement companies 2 Winding up Acts 2 Companies Acts 4 Receivers 5 Reorganisation 6
SOURCES OF INSOLVENCY LAW 7 RÉGULATION OF INSOLVENCY PROCEEDINGS 7
The Director of Corporate Enforcement 8 The Registrar of Companies 8 The Revenue Commissioners 8
CHAPTER 2 CREDITORS'REMEDIES 9
PRE-JUDGMENT RECOURSE 9
Contractual restrictions/requirements 9 Détention of chattels and choses in action 10 Set-off 10 Distress 10 Freezing/Mar^vfl injunction 10 Absconding debtors 12
EXECUTION OF JUDGMENTS 13
Seizure by the sheriff 14 Fieri facias 14 Attachmentof debts 16 Charging and attachaient of stocks and shares 19 Judgment mortgage 20 Receiver by way of équitable exécution 22
DlRECTORS' LlABILITY 2 3 SHAREHOLDER LIABILITY 25 INSUFFICIENT ASSETS FOR A WlNDING U P 2 5 INITIATIVES IN WINDING UPS 26
x The Law of Company Insolvency: Forde, Kennedy & Simms CHAPTER 3 RECEIVERSHIP 28 RECEIVERS IN EQUITY 29 STATUTORY RECEIVERSHIPS 30 CONTRACTUAL RECEIVERSHIPS 3 1 APPOINTAIENT 33 Grounds for appointment 33 Several receivers 36 Formalities and validity 36 Abusing power to appoint 38 Qualifications 39 RÉMUNÉRATION 39 Quantum 40 Variation 40 Forfeiture 41 Liability for payment 41 INDEMNITY 42 RÉSIGNATION 43 REMOVAL 43 SCOPE OF APPOINTMENT 44 EFFECTS OF RECEIVERSHIP 44 Members 45 Directors 45 Contracts 47 Litigation 50 Company property 50 Creditors' remédies 51 Liquidation 54
CHAPTER 4 RECEIVERS' POWERS AND DUTIES 57
AGENT OF COMPANY/CREDITOR 59 TARE POSSESSION OF AND PROTECT THE SECURITY 62 COMPROMISE CLAIMS 64 MANAGE THE BUSINESS 64 Making the choice 64 Manager's powers 66 Business contracts 66 Employment contracts 69 Leases 70 SELLING THE CHARGED PROPERTY 71 Duty of good faith 71 Duty of care 72 Conveyancing 76 "HIVE DOWN" 77 DISTRIBUTION 80 ACCOUNTING 80 ADMINISTRATIVE FUNCTIONS 82 RECEIVERS' LIABILITY 83 Contract 83
Table of Contents xi Fiduciary duties 84 Tort 84 Breach of statutory duty 87 Taxation 88
CHAPTER 5 SCHEMES OF ARRANGEMENT 90 CHAPTER 6 EXAMINERSHIP 93 OBTAINFNG PROTECTION 94 The pétition 94 Intérim protection 95 Appointing examiner 95 Related companies 96 Circuit Court 97 EFFECTS OF PROTECTION 97 Shareholders 97 Directors 97 Creditors 97 Contracts 100 Litigation 101 Company property 101 Winding up 102 EXAMINER'S STATUS, FUNCTIONS AND POWERS 102 Status 103 Functions and powers 103 PROPOSALS FOR A RESCUE PACKAGE 109 Contents 109 Considération by those affected 110 Report 111 Confirmation 112 Effects of confirmation 116 Contesting the confirmation 117 Liquidation 117 PRIORITY STATUS OF EXAMINER'S EXPENSES AND CERTIFIED
LlABILITIES 1 17
CHAPTER 7 WINDING UP/LIQUIDATION 119
NATURE OF LIQUIDATION 120 IMPORTING BANKRUPTCY LAW 122 MEMBERS' VOLUNTARY WINDING UP 124 Resolutions 125 Déclaration of solvency 125 Appointing liquidator 126 Conduct of liquidation 126 CREDITORS' VOLUNTARY WINDING UP 127 WINDING UP BY THE COURT 128 "Any company" 128 Petitioners for a winding up order 129
Xll
CHAPTER 8
CHAPTER 9
The Law of Company Insolvency: Forde, Kennedy & Simms
Grounds for ordering winding up 132 Thehearing 134 CONDUCT OF LIQUIDATION 135 INFORMAL LIQUIDATIONS 136 COMMENCINGINSOLVENT LIQUIDATIONS 139 CREDITORS'VOLUNTARY WINDING UP 139 Resolution to wind up 139 Creditors'meeting 140 Appointing liquidator and committee of
inspection 142 Company believed to be insolvent 142 Conduct of the liquidation 143 COMPANY'S OWN PÉTITION 144 CONTRJBUTORY'S/MEMBER'S PÉTITION 144 CREDITOR'S PÉTITION 146 "Any creditor" 146 Insolvency 147 Just and équitable grounds 151 Intervention prior to the hearing 151 DISCRÉTION TO REFUSE WINDING UP 152 Payment or tender to the petitioner 152 Disputed debt or counterclaim 153 Creditors opposed to winding up 155 Voluntary liquidation in progress 157 Company in receivership 159 PURPOSE OF PÉTITION 160 Preliminary motion or injunction 161 Damages 162 PROVISIONAL LIQUIDATOR 162 EFFECTS OF LIQUIDATION 165 TIME OF COMMENCEMENT 165 MEMBERS 166 DIRECTORS 167 Opposing pétition 167 Restricting directors 168 Disqualifying directors 169 PROPERTY 170 Ownership 171 Onerous property 171 CONTRACTS 172 Breach of contract 172 Onerous contracts 173 Employées 173 Leases 173 LITIGATION 175 "Action or proceedings" 175
Table of Contents xiii
Leave to proceed 176 Stay on proceedings 176 CREDITORS'REMÉDIES 177 Seizure by the sheriff 178 Attachment of debts 179 Charging and attaching stocks and shares 180 Judgment mortgage 180 Equitable exécution 181 Distress 182
CHAPTER 10 THE LIQUIDATOR 183
APPOINTMENT 183 Disqualifications 183 Creditors' voluntary winding up 184 Compulsory winding up 185 Indemnity bond 185 Filling a vacancy 186 RÉSIGNATION 186 REMOVAL 186 RÉMUNÉRATION 188 Creditors' voluntary winding up 188 Compulsory winding up 188 Stopping payment 189 STATUS 189 SUPERVISION 190 Committee of inspection 190 Creditors' and members' meetings 191 The Director of Corporate Enforcement 192
CHAPTER 11 LIQUIDATORS'POWERS AND DUTIES 194
CONSENT TO EXERCISING POWERS 195 APPOINTING A SOLICITOR 195 COLLECTING AND PROTECTING ASSETS 196 CHARGING ASSETS 197 CARRYING ON THE BUSINESS 197 REALISING THE ASSETS 198 Sale to ex-officer 199 Duties of care and good faith 199 DISCLAIMING ONEROUS PROPERTY AND CONTRACTS 202 What can be disclaimed 203 Effects of disclaimer 205 Compensating adverse effects 207 Vesting order 207 Procédure 208 INVESTIGATION AND EXAMINATION ON OATH 209 Personsand documents 210 Discrétion to refuse order 211 Conduct of examination 214
xiv The Law of Company Insolvency: Forde, Kennedy & Simms
Evidential privilèges 216 Non-co-operation 217 Public or private hearing? 217 Costs 218 Followup 218 RESPONSES TO WRONGDOING 218 CONDUCTING LITIGATION 219 Security for costs 219 Assignaient of claim 220 Liquidator's costs 221 Proving costs against the company 222 CALLS ON MEMBERS 222 Past members 223 Settling the list 223 Making calls 223 COMPROMISING CLAIMS AND CALLS 2 2 4 DlSCHARGING LlABILITIES 2 2 5 DISTRIBUTION TO MEMBERS 225 OTHER AND INCIDENTAL POWERS 226 ADMINISTRATIVE DUTIES 226 LIQUIDATOR'S LIABILITY 228 Contract 228 Fiduciary duties 228 Tort 229 TAXATION 232 VAT 232 Corporation tax 233 Capital gains 233 RESTRICTING DIRECTORS 234 Applications to restrict 235 Time limits and delay 236 Grounds for restriction 237 Scope of restrictions 240 Relief 240 Procédures 240
CHAPTER 12 AVOIDING TRANSACTIONS 244
AUTOMATIC DIVESTING 245 FRAUDULENT CONVEYANCE 245 General 246 Voluntary transfers 248 Transfers for valuable considération 249 Fraudulent préférence 252 POST-PETITION DISPOSITION 252 "Disposition" 253 Bankaccounts 253 Validation 255 Remedy 257
Table of Contents xv
FRAUDULENT PRÉFÉRENCE 258
Insolvency 259 Nature of transaction 259
Scienterl"Trauà" 260
Benefiting connected persons 267 Preferring secured creditor 268 Remedy 268
LATE FLOATING CHARGE 268
Floating charge 269 Insolvency 269 Money paid 270 Goods or services acquired 273 Charges given to officers and to "connected
persons" 274
UNREGISTERED CHARGE 274 UNLAWFUL TRANSACTIONS 274
CHAPTER 13 IMPOSING LIABILITY 276
FRAUDULENT DISPOSAL 276 FRAUDULENT TRADING 276 Parties 277 Sc«?nter/"fraud" 277 Trading 280 Burden of proof 280 Unlimited liability 281 RECKLESS TRADING 281 Parties 282 Contracting unpayable debt 282 Carrying on business and causing loss to
creditor 284 Carrying on business recklessly 284 Unlimited liability 286 Exonération 286 MlSFEASANCE 2 8 7 Parties 287 Scopeof liability 288 Defences 290 Court's discrétion 293 SHAREHOLDER LIABILITY 293
CHAPTER 14 DISCHARGING LIABILITIES 299
CLAIMS PROVABLE 300 Periodic payments 301 Future debts 301 Unliquidated claims 302 Contingent claims 303 Interest 304 Foreign currency debts 306
xvi The Law of Company Insolvency: Forde, Kennedy & Simms Costs 307 Negotiable instruments 307 Guarantees 308 Secured creditors 312 REJECTING CLAIMS 315 Indebtedness to shareholders 315 Double proof 316 Unenforceable debts 317
PROCÉDURE FOR PROOF 320
Ascertaining the liabilities 320 Modes of proof 320 Dealing with the proofs 321
PAYMENT 322
CHAPTER 15 TERMINATION AND AFTERMATH OF
WINDING UP 323
ANNULLING THE WINDING UP 323 STAYING THE WlNDING U P 3 2 3 CONCLUDING THE WlNDING U P 3 2 5 DISSOLUTION OF THE COMPANY 325
Effects of dissolution 326 Disposing of company records 326
RESUSCITATING DISSOLVED COMPANIES 327
CHAPTER 16 PRIORITIES AMONG CREDITORS 330
ABSOLUTE TITLE 331
Rétention oftitle 332 Leasing 333 Hire purchase 334 Incomplète sales transactions 336 Factored debts 339 Forfeiture clause 340
TRUST PROPERTY AND EQUITIES 341
Company constituting itself as trustée 342 Quistclose trust 342 Trust or lien by opération of law 344 Holding subject to equities 346
SECURED CREDITORS 347
Liens and pledges 348 Registration of charges 349 Spécifie charges 350 Floating charges 352 Liquidation 355 SET-OFF 356 Types of set-off 356 Receivership 358 Liquidation 362
Table of Contents xvn Receivership expenses 366 Examination expenses 367 Liquidation expenses 367 PREFERRED DEBTS 371 Taxes 372 Rates 374 Employées 374 Receivers/possession under floating charge 377 REMAINING CREDITORS 379 Debt subordination 379 Deferred creditors 382 Insurance and creditor protection funds 382
CHAPTER 17 EMPLOYEES AND INSOLVENCY 386
"EMPLOYÉE" 386 IMPACT OF INSOLVENCY ON THE EMPLOYMENT CONTRACT 387 Receivership 387 Examination 388 Liquidation 388 TRANSFER OF UNDERTAKINGS RÉGULATIONS 389 PREFERENTIAL DEBTS 391 THE INSOLVENCY FUND 391 Debts payable 391 Obtaining payment 393 PENSIONS 394
CHAPTER 18 INTERNATIONAL AND EUROPEAN ASPECTS 395
NON-REGULATION INSOLVENCIES 396 Jurisdiction 396 Applicable law 400 Impact of foreign insolvency proceedings 403 EC INSOLVENCY RÉGULATION 405 Ambit of régulation 405 Main proceedings attheCOMI 406 Secondary proceedings 410 Creditors'claims 411
CHAPTER 19 THE FINANCIAL SECTOR 413
CREDITORS'REMÉDIES 414 SCHEMES OF ARRANGEMENT 414 EXAMINERSHIP AND ADMINISTRATION 414 WINDING UP 417 PRIORITIES, SET-OFF AND COMPENSATION SCHEMFS 418
