By Simon O’ Connor, 23rd of December 2014
When a company can no longer meet its financial obligations it becomes insolvent. Depending on the situation, the company may go into Examinership, Receivership or Liquidation.
When a company is in financial difficulty but still has the potential to return to profitability it may be granted Examinership. In order for the company to be granted Examinership the high court must be petitioned by a Director, Creditor or employee. If Examinership is granted, the company is given court protection, which means that it cannot be wound-up nor have a receiver appointed for a period of up to 100 days. An Examiner is then appointed by the courts to develop a strategy to save the company. The strategy is then presented to the high courts for approval.
Receivership is usually always initiated by a Creditor when a company is failing to meet its financial obligations. Most commonly the Creditor is a bank trying to recover unpaid loans. The company may still trade but usually the sales of assets to repay such debts make it impossible for the company to do so.
There are three main forms of liquidation; Creditors Voluntary Liquidation, Members Voluntary Liquidation and Compulsory (Court) Liquidation.
A Creditors Voluntary Liquidation is when an insolvent company decides to close voluntarily. The directors of the company must hold a board meeting and agree that the company should be placed into liquidation. Ten days’ notice of the meeting must be given to all Creditors.
A Members Voluntary Liquidation is when a solvent company decides to wind up and deliver surplus funds to the shareholders. This is usually the case when the directors decide to retire or the business has completed its purpose. This is a tax efficient way to deliver the company’s surplus to the shareholders.
A Compulsory (Court) Liquidation is when a petition to wind up the company is brought before the High Court by its directors or its creditors. The company will then be appointed a liquidator with powers to liquidate a company, investigate its activities and pursue directors.
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