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Insolvency Regulation in Ireland

Presentation to IAIR Insolvency Workshop

Prague, 7 October 2004

Paul Appleby

Director of Corporate Enforcement in Ireland

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Presentation Overview

• Office of the Director of Corporate Enforcement (ODCE)• Corporate Liquidation in Ireland• Liquidation-Related Functions of the ODCE • Enforcement Options • Examinership/Receivership/Bankruptcy• Initial Impact of the ODCE

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What is the ODCE?

• Statutorily independent

• Multi-disciplinary body of accountants, lawyers, police and administrative staff

• ODCE is responsible for:– encouraging compliance with the Companies

Acts and– bringing to account those who disregard the law

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Encouraging Compliance• ODCE Educational Materials include:

– Information Books on Duties and Powers of:• Company Directors• Creditors• Liquidators, Receivers and Examiners

– Liquidation-Related Functions of the ODCE– Unliquidated Insolvent Companies

• Available on the ODCE website – www.odce.ie

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Forms of Corporate Insolvency

• Official Liquidations (under High Court supervision) • Voluntary Liquidations

- Members’ Voluntary Liquidations (Solvent Companies)- Creditors’ Voluntary Liquidations (Insolvent Companies)

• Unliquidated Insolvent Companies• Receiverships• Examinerships

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Relative Incidence of Insolvencies

Members VoluntaryLiquidationsOfficial Liquidations

Creditors VoluntaryLiquidationsReceiverships

Examinerships

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Corporate Insolvency LegislationCompanies Act 1963

Primary Liquidation & Receivership Provisions

Companies (Amendment) Act 1990 Examinerships - Corporate Restructuring/“Chapter 11”-Type

Companies Act 1990Restriction/Disqualification of Company DirectorsUnliquidated Insolvent Companies

Company Law Enforcement Act 2001 Functions of the ODCE

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General Principles

• Market decides timing of corporate liquidations

• Companies are liquidated by private practitioners

• No ‘State Insolvency Service’ in Ireland

• No State Licensing System for Liquidators (yet)

• But the High Court and ODCE have distinct roles

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General Principles

• Balance– Company versus the rights of Creditors– Limited liability versus public interest– High Court is currently the arbiter of the correct

balance in individual cases– Liquidators will assume more powers and will be

supervised by Creditors in the future

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Primary Duties of Liquidators

• Collect Assets– Not required to sell by public auction

– May administer with consent of Court/Creditors/Members

• Ascertain Creditors• Distribute Assets

– Priority of Creditors defined in Law

• Investigate Circumstances of Insolvency

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Official Liquidation

• Usually Insolvent Company

• Liquidation proceeds under High Court control

• Commenced by Creditors’ Petition to the Court

• Multiple Grounds- Primarily an inability to pay debts as they fall due

• Unexecuted judgements

• 21 day letter; or

• Court Assessment of inability to pay

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Members’ Voluntary Liquidation

• Company must be solvent – declaration to this effect• Initiated by members/shareholders of the company• Supervised by members• 500 Members Voluntary Liquidations per year

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Creditors’ Voluntary Liquidation

• Primarily Insolvent Companies

• Initiated by members

• Liquidator appointed primarily by creditors

• Supervised by members and creditors

• 500 Creditors’ Voluntary Liquidations per year

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ODCE Role

• Mandatory Reporting to the ODCE by - Liquidators of Insolvent Companies in relation to

- Conduct of Directors of Insolvent Companies

• Liquidators are obliged to apply to the High Court to ‘restrict’ all of the directors unless relieved by the ODCE

• Reporting to the ODCE by Professional Bodies of indictable offences committed by their members while acting as liquidator/receiver

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ODCE Role

• Investigation of Misconduct

– Require the production of documents from• Companies, company directors, auditors• Liquidators and receivers

– Search and seize documents – Examine company directors and other officers– Information-sharing with State Authorities – Powers of arrest, etc. retained by police in the ODCE

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ODCE Role

• Enforcement Options– Prosecution of Directors, etc.– Seeking Court Orders to remedy defaults– Disqualification of Directors, etc.– Restriction of Directors– Other Options (e.g., asset freezing)

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Disqualification• Disqualification is automatic upon conviction on

indictment for fraud/dishonesty• ODCE can apply to the High Court for a person’s

disqualification on certain grounds including: – Lack of suitability to be a director – Conviction of multiple offences– Director of a dissolved company

• Effect is that a disqualified person cannot act in management, formation or promotion of company or act as an officer

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Restriction• Directors of insolvent companies are eligible• ODCE and Liquidators may apply to the High Court • Reverse burden of proof

– Director must be able to show that he/she acted “honestly and responsibly”

• Effect is that a restricted person cannot act as a director, unless the company is adequately capitalised in cash:– €63,000 for a private company

– €317,000 for a public company

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Unliquidated Insolvent Companies

• ODCE and Creditors may seek: - High Court Examination of Directors- High Court Order to return Company Assets- High Court Order to arrest absconding Contributories - High Court Asset-Freezing Order

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Receiverships

• Receiver, an Enforcer of Mortgage/Security• Appointed by the secured chargeholder• Terms of appointment in deed• Duties

– Collect & sell assets– Benefit primarily to chargeholder

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Examinership

• Corporate Rescue

• Supervision by the High Court at all stages

• Only requires acceptance by one class of creditor

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Personal Bankruptcy

• Not an ODCE Function

• Bankruptcy Act 1988

• Individual Insolvencies under the High Court

• Limited numbers of applicants

• 7 persons adjudicated bankrupt last year

• Procedure takes 3-5 years to discharge

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Initial Impact of ODCE

• Over 1,000 Reports from Liquidators• 14 High Court Remedial Orders against Liquidators• Over 100 Convictions against Companies/Directors, etc.• Over 200 Liquidators restricted via Liquidator Actions• One Disqualification• Books of a number of Liquidators examined• Seizure of Company Assets by the ODCE in one case

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Thank You

Further Information on www.odce.ie