SEMINAR ON RECENT DEVELOPMENTS IN INSOLVENCY LAW
The Irish Centre for Commercial Law Studies
University College Dublin
5 December 2002
___________________
THE ROLE OF THE OFFICE OF THE DIRECTOR OF CORPORATE
ENFORCEMENT IN CORPORATE LIQUIDATIONS

The Responsibilities of Liquidators

The Role of the Office of the Director of Corporate Enforcement
Paul Appleby
Director of Corporate Enforcement
1.
Introduction
As you will know, many provisions in Part 5 of the Company Law Enforcement Act 2001
were commenced with effect from 1 June last. Specifically, these included the provisions
which confer a legal role on the Director of Corporate Enforcement with respect to
insolvent companies (both liquidated and unliquidated). The decision of the Irish Centre
for Commercial Law Studies here in University College Dublin to hold this Seminar is
therefore particularly timely.
I am covering two areas in this Paper, viz:

the responsibilities of liquidators in winding up a company and

the role which my Office will be discharging under the Company Law
Enforcement Act 2001 in relation to insolvent liquidations.
I suspect that many of you attending today are most interested in hearing about how we
will be discharging our role, and I will accordingly oblige you by devoting the bulk of the
Paper to this issue.
A.
THE RESPONSIBILITIES OF LIQUIDATORS
2.
The General Responsibilities of Liquidators
In both official and voluntary liquidations, the responsibilities of liquidators in winding
up the affairs of a company are fundamentally the same, viz:
3.

to collect and realise its assets;

to distribute the proceeds among the members and creditors and

to inquire into the affairs of the company.
Collection/Realisation of Assets
On appointment, a priority for the liquidator is to take possession of the company’s
property and assets, including its books and records and other documents relevant to its
affairs. The liquidator will be assisted in this task by the statement of affairs which has
been prepared and endorsed by the company’s directors as accurate.
As part of his or her asset realisation responsibilities, the liquidator must then seek to
maximise the value of the secured assets, including by prioritising the sale of perishable
goods and initiating and concluding where necessary any litigation which would have the
effect of increasing the amount available for distribution.
Actions which should be undertaken by liquidators in order to facilitate the liquidation
include:

disclaiming onerous contracts which are more of a liability than an asset to the
company;

applying to the High Court for an order directing that a related company
contribute to the assets of the company being wound up;

where a related company is also in liquidation, applying for an order directing
that the assets of the related company be pooled among the creditors of both
companies;

applying to the High Court to set the transaction aside on the basis that it
constitutes a fraudulent preference;

applying to the High Court for the return of property disposed of by the
company if he or she considers that the effect of the disposal was to perpetrate
a fraud on the company, its creditors or members;

instituting proceedings against directors or other persons, including shadow
directors, for fraudulent or reckless trading, seeking to make such persons
personally responsible for all or part of the company’s debts;

instituting proceedings for the recovery of, or payment of compensation for
the value of, money or property lost, by reason of its misapplication or its
wrongful retention or the wrongful exercise of lawful authority or the breach
of a duty of trust to the company;

seeking to impose personal liability on a director where the company has not
maintained proper books.
4.
Asset Distribution Responsibilities
When the assets of the company have been realised, a liquidator’s function is then to
distribute their value among the creditors and members/shareholders. In advance of
doing so, he or she must know who are the potential beneficiaries and the size of the debt
owing to each.
A liquidator can also make interim distributions and interim payments of costs and
expenses, when approved.
Naturally, where a company is insolvent, all bodies of
creditors will not be paid in full. A secured creditor who holds a fixed charge or
mortgage does not have to bring his or her claim in the liquidation; he or she is entitled to
realise the security outside the liquidation. The priority for the distribution of assets is:

costs and expenses of the liquidation;

preferential creditors;

floating charges;

unsecured creditors;

members of the company.
Costs and expenses of the liquidation include matters, such as the liquidator’s
remuneration, the expenses of the Committee of Inspection (if any), the costs payable to
the liquidator's solicitor, the necessary disbursements of the liquidator, the costs of the
petition to wind up the company and the costs and expenses of those involved in the
making of the statement of affairs.
Preferential debts include certain taxes owed to the Revenue Commissioners and various
payments owed to employees.
5.
Investigation Responsibilities
A liquidator is required to investigate the circumstances which led to the company’s
insolvency. He or she will be assisted in this task by the statement of affairs and the
company’s books. Where the liquidator has grounds for believing that the company’s
directors may have hidden or improperly disposed of company assets before the
commencement of the winding up, the liquidator should interview the directors and make
any other appropriate enquiries.
In certain situations, it may be necessary for the liquidator to apply to the High Court for
various reliefs, including:

the examination on oath of one or more of the company’s officers or other
person known or suspected to have company property or to be able to assist
the liquidator with the investigation;

the payment or delivery by any such person of any money, property, books or
papers of the company to the liquidator;

the arrest of a contributory, director, shadow director, secretary or other
officer and the seizure of his or her books, papers and movable personal
property in certain circumstances;

the freezing of assets where the liquidator suspects that a director or other
person is likely to dissipate the assets or to remove them from the jurisdiction.
6.
General Reporting Responsibilities
Official and voluntary liquidators are required to obtain the approval of either the Court
or the committee of inspection before certain powers are exercised. A liquidator always
has the power to apply to the Court for directions, as have creditors and members.
A voluntary liquidator may summon a general meeting of the company for any purpose
which he or she sees fit and is obliged to summon a general meeting (and, in the case of a
creditors’ winding up, of the creditors) each year where the liquidation is not concluded
and to make an account of his or her dealings during that year. In a members’ voluntary
liquidation, a liquidator is also required to call a creditors’ meeting where he or she thinks
that the company will be unable to pay its debts.
Where the affairs of the company are fully wound up, a voluntary liquidator must make
an account of the winding up and call a general meeting and, if applicable, a creditors’
meeting.
The voluntary liquidator’s report is then delivered to the Registrar of
Companies, and the company is deemed to be dissolved three months later.
A Court-appointed liquidator liaises with the Examiner of the High Court in relation to
the performance of his or her duties. When the Examiner has passed the liquidator’s final
account, the liquidator reports to the High Court and applies for directions as to the
application of the balance. The Examiner will certify that the affairs of the company
have been completely wound up, and the Court will make an order that the company be
dissolved.
B.
The Role of the Office of the Director of Corporate Enforcement
7.
New Reporting Responsibility to the Director of Corporate Enforcement
Section 299 of the Companies Act 1963 has required the reporting by liquidators to the
DPP of any suspected offences by officers (past or present) or by members of the
company which have come to attention. Section 51 of the 2001 Act now obliges the
liquidator to report as well to the Director of Corporate Enforcement.
Since 1 June last, certain liquidators of insolvent companies also have a reporting
relationship with the Director arising from the initial commencement of section 56 of the
Company Law Enforcement Act 2001. The report is in a prescribed form and must be
submitted within six months of appointment or within six months of the commencement
of the section, namely by 30 November last. The section also permits me to require the
submission of further reports at specified intervals.
Section 56 also requires each of the liquidators in question to apply to the High Court to
restrict all of the directors of the insolvent company, unless exempted from doing so by
my Office. The purpose of this reporting arrangement is to determine if the conduct of
the directors warrants referral to the High Court and more generally to assist the Director
in carrying out his functions. These applications must be made to the Court no earlier
than three months and no later than five months after the submission of the report to the
ODCE.
The initial commencement of section 56 is limited to the following liquidators:

those appointed on or after 1 June 2002 and

those appointed on or after 1 July 2001, where the liquidation was ongoing on
1 June 2002.
However, it is likely that further tranches of liquidators will be brought within the
reporting obligations, when the effect of the initial commencement provisions has been
evaluated.
8.
Examination of a Liquidator’s Books
Section 57 of the 2001 Act permits the Director to require a liquidator for stated reasons
to produce his or her books for examination either in relation to a particular liquidation
process or all liquidations undertaken by him or her, other than those which have
concluded more than six years previously. The liquidator is also required to answer any
questions as to the content of the books and to give all reasonable assistance to the
Director.
I envisage that I may require to use these powers from time to time in
evaluating the conduct of a liquidator in one or more liquidations.
A similar provision, contained in section 53 of the 2001 Act, permits me to examine the
books of receivers.
The operation of these provisions may arise out of information obtained independently by
the Office or it may follow the submission to the ODCE of a report under section 58 of
the 2001 Act. Section 58 requires prescribed professional bodies to report if they find
that a member has failed to keep appropriate records or has committed an indictable
offence under the Companies Acts.
9.
The ODCE/Liquidator Relationship
Shortly after the commencement of section 56 on 1 June, the ODCE sent liquidators a
copy of the prescribed report form together with a set of guidance notes on the
completion of the form. They were also advised of the deadline for submission of the
report. Several reminders issued in the following months. Each newly appointed
liquidator is also being advised of his obligations shortly after appointment.
In evaluating liquidator reports, we will require from time to time to clarify particular
issues or seek additional information from the liquidator. A bilateral meeting may be
arranged from time to time with the liquidator to discuss an individual report or a
selection of reports. We see benefit in doing so, as it will increase the understanding by
liquidators and the ODCE into the approaches taken by each side in making its
determinations.
As an Office, we have committed ourselves to issuing decisions on the question of relief
with respect to 90% of reports within three months and in 100% of cases within four
months of receipt of the report.
10.
The Public Notice Procedure
In order to assist our determining whether or not relief should be given in individual
cases, we decided that we would institute a public notice procedure under which creditors
or other parties affected by the insolvent liquidation might inform us of their concerns.
We are also encouraging that such concerns be notified to the liquidator in advance of his
or her reporting to us.
For this purpose, we will post on our website at regular intervals certain publicly
available information, such as details of the liquidator and the insolvent company to
which he or she has been appointed. We have made it clear on our website that the mere
identification of a company’s name does not imply any wrongdoing on the part of the
company’s directors.
It is also our intention to post on the website at regular intervals the names of those
liquidators who are up to date with their section 56 reporting obligations.
In due course, we will also notify via the website the Director’s decision to grant full
relief and the outcome of any subsequent Court proceedings taken by the liquidator.
11.
Confidentiality Issues
The information received by the ODCE via the public notice procedure and the section 56
reports comes within the terms of section 17 of the 2001 Act which requires that it be
handled under strict conditions of confidentiality. It is also my opinion that disclosure of
such information is not permitted under the Freedom of Information Act 1997 (as
amended by the 2001 Act).
12.
Criteria for Relief
Each liquidator’s report will be considered on its merits, taking account of its contents
and any information which has come to attention via the public notice procedure or
otherwise. Clearly, we will consider giving relief, where the liquidator gives a clear and
unambiguous statement to the effect that the directors have demonstrated that they have
acted honestly and responsibly in relation to the conduct of the company’s affairs. We
reserve the right not to accept a liquidator’s recommendation, whether that is in favour or
against a restriction application proceeding in any particular case.
We have publicly indicated that we are unlikely to relieve a liquidator in certain
circumstances. These include the following situations:

a suspected breach of the Companies Acts by a director;

a director putting personal interests before those of the company;

misapplication or retention by a director of company property;

a company continuing to trade while insolvent, where the directors knew or ought
to have known of this situation;

a selective discharge of company debts prior to liquidation;

evidence of past or suspected future ‘Phoenix Syndrome’ practices;

failure to co-operate with a liquidator.
13.
Monitoring the Restriction Proceedings
We have indicated that the ODCE wishes to be a Notice Party in all restriction
proceedings initiated under section 56. We do not expect however to be represented in
Court in the vast majority of cases. However, there will be a minority of cases where –

we may possess information which we believe should be brought to Court
attention;

the Director may wish to endorse the liquidator’s decisions in an important case;

the Director may consider that orders, additional to that of restriction, may be
warranted.
Clearly, we will be anxious in due course to receive the outcome of the Court
applications.
14.
Conclusion
In 1995, the High Court drew attention to the “apparent injustice” between voluntary and
official liquidations, whereby the directors of companies wound up by the Court were
required to account for their conduct before the Court. In contrast, the directors of
companies wound up usually escaped accountability, because voluntary liquidators and
receivers were not, in the opinion of the Court, either sufficiently conscious of the 1990
Act or they did not see it as their function to bring relevant cases before the Court. The
Court went on to prompt the Oireachtas to consider legislative change to deal with this
injustice.
The new reporting arrangements provided for under section 56 are intended to address
specifically the problems which were highlighted by the High Court. However, there are
many more provisions in the 2001 Act which confer authority on my Office to intervene
in insolvent situations. Specific measures, such as enabling the Director to seek the
various remedies permitted under section 251 of the 1990 Act, have also been included to
deal with unliquidated insolvent companies and the abuses that may arise in such
situations. However, these are matters outside the scope of today’s Seminar.
All of the provisions in the 2001 Act have been enacted to raise the standards of
corporate behaviour and specifically to ensure that sanctions are brought to bear in
appropriate circumstances. The ODCE is part of a new regime which will encourage
compliance and curb irresponsible or abusive behaviour.
We are anxious to work with practitioners, the relevant professional bodies, the Courts
Service and other parties in achieving these objectives. That is why we have gone to the
trouble of issuing Consultation Papers, prior to the issue of Decision Notices. We are
hopeful that the new regime will have a positive impact in raising standards and in
reducing business risk for the majority of genuine business people in the economy.
Thank you for your attention.
APPENDIX 1
Principal Provisions of the Companies Acts dealing with Liquidators’
Responsibilities
Part VI of the Companies Act 1963 (Winding Up)
Part VI of the Companies Act 1990 (Winding Up and Related Matters)
Part 5 of the Company Law Enforcement Act 2001 (Winding Up and Insolvency).