COMPANY LAW REVIEW GROUP REPORT ON THE PROTECTION OF EMPLOYEES AND UNSECURED CREDITORS Contents Page Chairperson’s Letter to the Tánaiste ......................................................................................... 9 Executive Summary .................................................................................................................. 11 Introduction ............................................................................................................................. 13 Request from Minister for Jobs, Enterprise and Innovation ................................................... 13 Chapter 1. General Legal Landscape ........................................................................................ 15 1.1 Introduction ....................................................................................................................... 15 1.2 Employees and Unsecured Creditors ................................................................................ 15 1.2.1 Definition of Employees and Unsecured Creditors ........................................... 15 1.2.2 Entitlements of Employees and Unsecured Creditors....................................... 15 1.3 Priority of Payments for Creditors in Liquidations ............................................................ 16 1.3.1 Employees ......................................................................................................... 16 1.3.2 Other Unsecured Creditors ............................................................................... 17 1.4 Relevant Principles of Company law ................................................................................. 18 1.4.1 Separate Legal Personality ................................................................................ 18 1.4.2 Limited Liability .................................................................................................. 18 1.4.3 Piercing the Corporate Veil ............................................................................... 19 1.4.4 Corporate Governance ...................................................................................... 19 1.4.5 Share Capital ...................................................................................................... 20 1.5 Overview of Insolvency Regime in Ireland ........................................................................ 20 1.5.1 Examinership ..................................................................................................... 20 1.5.2 Receivership ...................................................................................................... 21 1.5.3 Liquidation ......................................................................................................... 21 1.5.4 Abuse of insolvency ........................................................................................... 22 1.6 General Approach to the Provisions of the Companies Act 2014 ..................................... 23 Chapter 2. Directors’ Duties and Personal Liability ................................................................. 25 2.1 Introduction ....................................................................................................................... 25 June 2017| 3 2.2 The Director’s Duty to the Company’s Employees ............................................................ 25 2.2.1 Introduction ....................................................................................................... 25 2.2.2 Proposal to Strengthen Duty to Employees in Section 224 ............................... 26 2.2.3 Proposed Reforms of the Director’s Duty to Employees in the United Kingdom27 2.2.4 Fiduciary Duties of Directors ............................................................................. 29 2.2.5 Alternative Enforcement of Fiduciary Duties - Derivative Actions .................... 31 2.2.6 Directors’ Compliance Statement ..................................................................... 32 2.3 Directors’ Duties to Creditors Where the Company is, or is Likely to be Insolvent .......... 33 2.3.1 Directors’ Duty to Creditors............................................................................... 33 2.3.2 To Whom is this Duty Owed? ............................................................................ 34 2.3.3 The Codification of the Duty Owed to Creditors ............................................... 36 2.3.4 Proposed Codification of the Directors’ Duty to Creditors ............................... 38 2.4 Circumstances Where Personal Liability can be Imposed on Directors ............................ 40 2.4.1 Introduction ....................................................................................................... 40 2.4.2 Fraudulent Trading ............................................................................................ 41 2.4.3 Reckless Trading ................................................................................................ 41 Chapter 3 Lifting the Corporate Veil ........................................................................................ 43 3.1 Introduction ....................................................................................................................... 43 3.2 Circumstances where Separate Legal Personality is Set Aside .......................................... 43 3.2.1 Evasion of Legal Obligations .............................................................................. 44 3.2.2 Frustration of Statute ........................................................................................ 44 3.2.3 Lifting the Veil in an Enterprise Group .............................................................. 45 3.3 Contribution Orders ........................................................................................................... 46 3.3.1 Introduction ....................................................................................................... 46 3.2.2 The Statutory Provisions .................................................................................... 46 3.3.3 The Substantive Differences between the New Zealand and Irish Provisions .. 47 3.3.4 Consideration by the New Zealand Courts as to the Factors which Merit the Making of a Contribution Order ........................................................................................ 47 June 2017| 4 3.3.5 Consideration of Proposal to Replicate New Zealand’s Provisions in Section 599 of the Companies Act 2014 ...................................................................................... 49 3.3.7 Irish Case Law in Respect of Separate Legal Personality for Groups ................. 53 3.4 Pooling Orders ................................................................................................................... 53 3.4.1 Introduction ....................................................................................................... 53 3.4.2 Statutory Provisions .......................................................................................... 53 3.4.3 Consideration of Pooling Orders ....................................................................... 54 3.5 Overall Conclusion - Exceptional Remedies in Company Law ........................................... 55 Chapter 4 Proposed Reforms in the Liquidation Process ........................................................ 56 4.1 Introduction ....................................................................................................................... 56 4.2 Powers of the Provisional Liquidator................................................................................. 57 4.3 Avoidance of Transactions in the Companies Act 2014 .................................................... 58 4.3.1 Unfair Preference .............................................................................................. 58 4.3.2 Fraudulent Transfer ........................................................................................... 61 4.4 Proposed Reforms of the Liquidation Process .................................................................. 64 Chapter 5: Sections of the Companies Act 2014 Deemed Fit for Purpose .............................. 68 5.1 Section 567 Application of certain provisions to companies not in liquidation ................ 68 5.1.1 Application for the Protection of Employees and Unsecured Creditors ........... 69 5.1.2 Committee Discussions ..................................................................................... 69 5.2 Section 569 Circumstances in which company may be wound up by the court ............... 69 5.2.1 Application for the Protection of Employees and Unsecured Creditors ........... 70 5.2.2 Committee Discussions ..................................................................................... 70 5.3 Section 570 Circumstances in which company deemed to be unable to pay its debts .... 71 5.3.1 Application for the Protection of Employees and Unsecured Creditors ........... 71 5.3.2 Committee Discussions ..................................................................................... 71 5.4 Section 572 Powers of court on hearing petition .............................................................. 72 5.4.1 Application for the Protection of Employees and Unsecured Creditors ........... 73 5.4.2 Committee Discussions ..................................................................................... 73 June 2017| 5 5.5 Section 612 Power of court to assess damages