Whereas CVLs (creditors voluntary liquidation) deal with insolvent companies, MVL (members voluntary liquidation) winding ups are in relation to the winding up of solvent companies. Some of the regular queries we receive are as follows:
Does a solicitor have to be involved in the winding up process?
No, since the Companies Act 2014, the winding up can be effected by Summary Approval Procedure, a more streamlined process (S579). In practice, the directors will sign the Declaration via the summary approval procedure vouching the company solvency.
What entities may use the E1-SAP?
The winding up process via E1-SAP may be used by LTD, DAC, ULC and PLC entities.
What is contained in the E1-SAP?
The document contains a summary of the assets and liabilities of the company (up to date within 3 months of the winding up date) and a declaration by a majority / all of the directors to the effect that the company will be able to pay or discharge its debts and other liabilities within 12 months after the commencement of the winding up.
Is the Liquidator the only professional required in the process?
No, the E1-SAP also requires an ‘Independent Persons Report’ (S208 Report) to state that the Declaration by the directors ‘is not unreasonable’. The independent Person must be a qualified statutory auditor when signing. Practically speaking, this means a statutory auditor with a current audit practicing certificate.
Can an accountant act for their own client?
Section 635 of the Companies Act 2014 prohibits an officer of the company from acting as a liquidator when they are or have been in the previous twenty-four months prior to the date of commencement of the insolvency appointment, auditor to any client. Furthermore, professional ethics code of the various accountancy bodies in the main outlines that a firm shall not take an insolvency appointment where audit related work was completed within the previous three years.
Will the process require the participation of shareholders and directors?
Yes, while the directors will call the agenda and winding up meetings, and vouch the company solvency in the Declaration, it is the company members /shareholders who pass the majority 75% special resolution to wind up the company, and appoint the nominated liquidator – via unanimous written resolutions (S193) or majority resolution at an EGM (S194). The Form G1 signed by the director contains the said members’ resolution to be filed in the CRO.
Can the winding up be completed in one day?
It is often most practical and efficient to effect the winding up process in one day, in which case care must be afforded to ensure the winding up resolution is signed after the Declaration. The signatures will be date stamped to ensure the timeframe and order of the process in these cases.
Why is the liquidator requiring the shareholders to sign an Indemnity?
A signed indemnity expedites the process of shareholders receiving distributions. By indemnifying the liquidator for potential claims and costs arising in the liquidation, the liquidator can make a substantial First Distribution – rather than awaiting a number of months.
What forms are filed in the Companies Registration Office when the liquidator is appointed?
The liquidator will file the E1-SAP Declaration, G1 special resolution winding up forms and the Form E2 confirming their appointment. The liquidator’s office will also file a B2 change of registered address of the company.
Regarding CRO filing timeframe requirements:
Form 2 14 days
G1 Resolution 15 days
E1-SAP Declaration 21 days
What is the Liquidators role and duties on appointment?
The various duties include:
- Filing of notice of the MVL appointment in Iris Oifigiuil, and call in all creditors claims (to be filed within 14 days of appointment).
- Take command of the company assets and realisations, and make an initial distribution to members.
- Register for VAT if continuing a trade or if they have disposable assets.
- Execute legal documentation regarding transfer of assets in specie.
- Liaise with Revenue Commissioners, ensure all pre-liquidation returns are filed and obtain clearance that the company is not being subject to Revenue audit or queries.
- Call Annual Meetings in circumstances where the liquidation is prolonged due to matters and file respective Forms to the CRO with reports (E3/E4s)
- Make Final Distribution of realised funds to the members
- Call the Final Meeting
- Lodge details of Statement of Account (E5) and Final Meeting (E6) to CRO
Do all pre-liquidation returns have to be filed by the directors / company accountant in the lead up to the MVL winding up?
Late CRO returns do not have to be filed. Indeed, MVL is often a practical and cost effective solution of late filing companies who wish to be wound up, rather than undergoing statutory audits and VSO (voluntary strike off).
Revenue Returns (PAYE/VAT/CT) should be brought up to date, and this will have to be the case before the liquidator obtains clearance from the Revenue Commissioners (to wind up the liquidation).
In effect, the company accountant will have to prepare management (non-statutory financial statements up to a date of 3 months of the winding up – to form the basis for the figures therein, and to file Revenue returns up to the date of cessation of trading.
Can the company trade up to the winding up date?
Company directors will take the advice of their accountant or tax advisor in relation to the various CGT reliefs for disposing of company shares (Retirement Relief/ Entrepreneurial Relief). Some of these tax relief reliefs may require trade up to a recent date prior to the liquidation. It is important for the director/shareholders to obtain independent taxation advice as this is not the role of the liquidator who is impartial and cannot have conflicts of interest on appointment.
What are distributions in specie?
A distribution in specie refers to the distribution of an asset in its current form, rather then first liquidating and distributing the proceeds. It is a practice often used in the MVL process. For example, freehold property can form part of a distribution, and in such a transfer is exempt from stamp duty.
How long is the MVL process?
This depends on the matters and complexities of the liquidation, but for straightforward cases with only bank funds the process can be a matter of some months, after Revenue clearance is obtained, the Final distribution of funds are made, and the liquidator calls the Final Members Meeting (with 28 days notice) to close the liquidation.
When is the liquidation finalised?
After the Final Members Meeting, the liquidator will file the forms E6/E7 in the Companies Registration Office in accordance with Section 705 of the Companies Act 2014. The Registrar of the CRO will dissolve the company within a matter of months.
Can a wound up company ever be re-instated?
For a company dissolved following Liquidation, a court order is necessary to restore the company. The restoration application can be made under section 708 of the Companies 2014 within two years of the dissolution. This would have the effect of voiding the dissolution of the company and restoring it to a status of Liquidation.
For how long is the liquidator required to retain the company books and records?
Per Section 707, the books and records ‘shall be retained by the liquidator for a period of at least 6 years after the date of the dissolution of the company’.
This article is of a general nature in relation to Members Voluntary Liquidations. For professional advice, please contact our restructuring team at McCarthy Walsh on 01 444 4260 for trusted advice in confidence.