Deciding on the future of your business

WHETHER TO RAISE CAPITAL, OR TO LIQUIDATE OR TO GO INTO EXAMINERSHIP
Many businesses are today looking into the future not knowing what decision they should make. Here we will address a number of questions that arise and the pitfalls therein. In this issue, we will explore liquidation. The next issue will explore raising capital and examinership. Liquidation is often seen as the final step in a business but this is not necessarily the case.

Reasons for Liquidation.

1. Not understanding Employee costs, which include taxes, holidays, etc.,
   
2. Not realising what overheads are: Property Rates, Rent, Insurance, Power, Communications, Motor, Travel.
   
3. Failure to issue invoices quickly, and not following up on money owed. One would be surprised how often this happens.
   
4. Failure to review lists of Debtors (Receivables), Creditors (Payables) and bank accounts.
   
5. Failure to work with staff as a team, because of lack of knowledge or clash of personalities.
   
6. Cost Management plans should be drawn up, these may involve better utilisation of existing resources, rather than a reduction in costs.
   
7. Sales revenue should be reviewed. The old rule of 20% of your customers bring 80% of your revenue is well founded and should not be ignored.
   
8. Remember, a customer who does not pay on time may cost you more in time to collect that the customer is worth – so weed out poor paying customers, they cost you in the long run.

Consequences of Liquidation.

1. Reputation damage.
   
2. Small Traders get badly burnt and, in some cases, go under as a result. It is the small trader who remembers the company and directors that took his business under.
   
3. Tax clearance for the company, the directors, and other companies the directors are involved with, may be compromised.
   
4. A director who fails to act quickly and lets liabilities grow in a series of ongoing losses can expect to be restricted as a director or barred. Restricted means in effect that you can not be a director for up to five years from the date of decision (not the date of liquidation which may be a year earlier). Barred means you are not to act as a director or manager in a company for five years or more, depending on the order made. This has much tougher implications and is reserved for clearly deliberate wrongs.
   
5. Payment to creditors in the period running up to a liquidation may be reversed by the liquidator if it is shown that preference was given to creditors.

GDPR Issues with a Creditors Meeting & Information to Creditors.
An issue has arisen since GDPR has been implemented in giving details out to parties:

1. List of creditors – This is available (names only) under the Companies act up to the time of the creditors meeting.
   
2. Statement of affairs: The companies acts require this to be presented at the Creditors meeting . There is no provision for this to be released after the Creditors meeting.
   
3. Listing Employees on a Statement of affairs: Legislation protecting employees calls for confidentiality, the Companies Act calls for disclosure of creditors in a statement of affairs. Best practice is to have the employees listed separately and pass same to Revenue or the Dept. of Social Protection if in attendance, and have it available to verify any proxy or individual value ina creditors vote.

Sale of Assets in a Liquidation.
A liquidator has traditionally been empowered to sell assets of the company including goodwill. However GDPR has raised a number of concerns here:

1. Sale of customer and supplier lists where individuals are mentioned as contacts, results in the list falling under GDPR protection and the release of this data is restricted.
   
2. Interestingly a Management Buy Out of the business from a liquidator where the persons involved have been dealing with both the customers and suppliers appears to be more acceptable to the regulators.

Important Considerations for Liquidation

1. Inform your employees, arrange for the nominated liquidator to meet with your staff and explain their entitlements and how fast they will be processed.
   
2. Employees claims in a liquidation cover the following areas:
   Wage arrears
   Holiday and Bank Holiday Arrears
   Minimum Notice
   Statutory Redundancy

In our next issue, we will cover the general points of raising capital and examinership. If you have any questions about the topic of liquidation, please talk to us.

Gerard.murphy@gmco.ie