Liquidators refuse to wind up small companies

Liquidators are refusing to wind-up small insolvent companies because of new obligations due to come into force on Saturday.

According to a senior insolvency practitioner, this new phenomenon has become noticeable in recent weeks and is due to liquidators' concerns that they will be shouldered with legal costs arising from new responsibilities under the Company Law Enforcement Act.

Under the new measure liquidators will be obliged to report to the Office of the Director of Corporate Enforcement as to the conduct of the directors of the company undergoing liquidation. Unless exempted by him from doing so, the liquidators will be required to apply to the High Court for the restriction of the directors.

In cases where the company's assets are not sufficient to pay for such legal action, the costs will have to be shouldered by the liquidator.

The source said the issue is one which has implications for corporate enforcement generally. "It may be a gap which is opening up and the question is how to fill it." The matter only affected small companies but more than 90 per cent of Irish companies are small, he added.

Yesterday the Director of Corporate Enforcement, Mr Paul Appleby, said he expected the new measure to come into effect on Saturday next. The order has yet to be signed by the Minister for Enterprise, Trade and Employment, Ms Harney.

Addressing a lunch in Dublin hosted by company information and debt recovery organisation, Experian Ireland, Mr Appleby said his office would not be subsidising liquidators' legal costs. He said the Oireachtas had introduced an amendment which allowed full recovery of an applicant's costs. "This should offer some comfort to liquidators in undertaking certain marginal insolvency assignments."

He said he would be keen to co-operate with liquidators in persuading the High Court to exercise its discretion in the manner intended by the Oireachtas.

Mr Appleby said that, in time, it may be necessary to consider alternative options such as providing for voluntary acceptance of restriction by directors, in order to avoid legal costs. Another possible option would be to provide for certain applications to be heard in the lower courts. He also said he has powers to "call to account" directors who seek to avoid their responsibilities. "This arises particularly in respect to unliquidated insolvent companies and liquidated insolvent companies where no liquidator has been appointed."

Mr Appleby has powers to inspect such companies books, summon directors for examination by the High Court, recover company assets and make the directors personally liable for reckless trading or fraud.

While he would not be able to intervene in all such cases, "I want to make it clear that this does not indicate a lack of will or interest by my office... on the contrary we will use our full powers to tackle corporate misconduct in appropriate areas."

As part of a consultation process, which is expected to produce agreed guidance notes by the director and the accountancy bodies in the coming weeks, Mr Appleby's office received more than 20 submissions. A minority of these, he said, argued against introducing the measure.

The two main reasons given for this were legal costs and the obligation to file reports to the director, with the latter seen as diverting attention from the realisation and distribution of assets to creditors.

Mr Appleby believed the measure would have positive effects. "There is certainly a potential for some negative consequences, but in exercising my powers I intend to minimise these as far as possible."