Enhanced Protection for Creditors of Insolvent Companies

On the 9^th of May 2024, the Employment (Collective Redundancies and Miscellaneous Provisions) and Companies (Amendment) Act 2024 (the ‘Act’) was signed into law and it was commenced on the 1^st of July 2024. As well enhanced protection for employees, it introduces some important changes to the Companies Act 2014 in the context of companies facing or in liquidation.

1. Powers extended in relation to related company contributions to liquidation A liquidator may now seek a court order requiring a related company to contribute to the assets of a company in liquidation without the necessity for the court to be satisfied that the related company’s actions caused the liquidation.  This means that the threshold for such orders to be made is much lower.
2. Time limit to undo an ‘Unfair Preference’ extendedAn “unfair preference” occurs in insolvency law when a debtor gives preferential treatment to one creditor over others, typically shortly before a liquidation.

   It had been the case that the time limit for an application to have an unfair preference set aside was 6 months (or 2 years in the case of transfer to a connected person).  The Act now extends this to “such longer periods as the court considers just and equitable having regard to the circumstances of the act concerned”.

3. Improper TransfersThe provisions of the Companies Act which which deal with improper transfers now include a specific exclusion which confirms that payments made in the ordinary course of business are excluded.
4. Reckless TradingThe test for reckless trading has changed from a subjective test to an objective test. It is no longer a requirement for a director to ‘knowingly’ have been party to reckless trading.  This means the court can now find a director personally liable for the debts of the company if it is found that the director ought to have known that they were a party to reckless trading. The courts will not only grant relief from such personal liability if the court is satisfied that the person took steps to minimise or mitigate losses to the company’s creditors.

These changes clarify and enhance the powers of liquidators and the courts to recover assets and ultimately protect creditors. Directors need act promptly and decisively when facing insolvency, always with the aim of protecting creditors’ interests and complying with legal obligations to avoid personal liability and potential penalties.

For further information contact Elaine McGrath emcgrath@reddycharlton.ie