Liquidation: How it works

Liquidation is the formal means by which companies are wound up and any proceeds distributed to creditors and shareholders.

Basically, the process involves the liquidator taking control of the business, realising the assets, paying off the creditors in order of preference, and then distributing what's left to the shareholders.

However, the reality is that the vast majority of companies that are liquidated every year in the Republic are insolvent. That is, they cannot pay their debts, so there is often nothing left for shareholders and some groups of creditors.

Liquidators realise whatever assets are available, and distribute the proceeds to creditors.

Those with security over the company's assets, generally banks or finance institutions, are paid first.

These are followed by preferential creditors, mainly workers and the Revenue Commissioners.

Unsecured creditors, almost always other businesses that have been supplying the liquidated company, are paid last. In the case of insolvencies, they frequently get nothing or a tiny percentage of what they are owed.

Where a company is insolvent, the Department of Jobs, Enterprise and Innovation's social fund pays most of the workers' entitlements and then takes over their claims.

Companies do not have to be insolvent to be wound up; generally all that is required is a vote of 75 per cent or more of the shareholders, known as a special resolution. This is a voluntary liquidation.