The Employment (Collective Redundancies and Miscellaneous Provisions) and Companies (Amendment) Act 2024 ("the 2024 Act") came into effect on Monday, 1 July 2024. While we have looked at the changes and updates to the application of the Collective Redundancy regime to insolvency practitioners in our previous article here, this article will look at some of the other important changes to the Companies Act 2014 ("the Companies Act") that have come into effect under the 2024 Act from an insolvency law perspective.
The 2024 Act has introduced a number of subtle, but important, changes to the insolvency regime in Ireland. These amendments particularly affect the application of some of the key principles within that regime including the unfair preference of company creditors, improper transfers of company property, reckless trading by company officers and contribution orders against related companies. We look at each of these in turn and the subtle changes made respectively.
1. Changes to the 'look-back' periods prior to the insolvent winding-up of a company where certain transactions to creditors may be deemed to be unfair preferences:
Section 604 of the Companies Act empowers the court to void a transaction made by an insolvent company to a creditor with a view to preferring that creditor over others. It also provides for certain look back periods that will apply namely: 6 months from the date of commencement of liquidation for third party transactions and extended period of two years for transactions involving connected parties. These statutory timelines have now been extended to such periods as the court deems "just and equitable" having regard to the circumstances. This essentially removes certainty around the timelines that apply to unfair preference actions and potentially increases the scope for liquidators to look to avoid transactions made beyond those timelines where it can be demonstrated to the court that it is just and equitable to do so.
2. Changes to the circumstances whereby the Court may order the return of assets that have been improperly transferred:
Section 608 of the Companies Act relates to the court's power to order the return of assets of an insolvent company which have been improperly transferred.
The court can order any person who has the use, control or possession of the property concerned, or who has the proceeds of the sale or development of that property, to deliver it or pay an equivalent sum to the liquidator. This can be done on such terms or conditions as the court thinks fit. Section 608 has now been amended to make it clear the transactions made in the ordinary course of business will be exempt from Section 608. It remains to be seen what the court will consider to be "ordinary course of business" in the context of an action to reverse a transaction under the Section 608.
3. Changes in relation to reckless trading:
Section 610 of the Companies Act provides for potential personal liability for officers of a company which is in liquidation or examinership who were "knowingly" a party to the carrying on of a business in a reckless manner. The requirement for actual knowledge was a subjective test. Section 610 has been amended to remove the requirement for the act to be carried out "knowingly" and has removed the broad defence of acting "honestly and responsibly". Now the court, when considering whether an officer should be liable for reckless trading, can have regard to what reasonably practical steps the officer took from the relevant time (when they knew or ought to have known that their actions would likely cause a loss to creditors) to minimise or reduce any such loss to the company's creditors. Changes to Contribution Orders:
Section 599 of the Companies Act allows a liquidator to seek a contribution order against a related company to contribute to the assets of the company in liquidation in very particular and limited circumstances. Prior to the 2024 Act, any such contribution order could only be made if the court was satisfied that the circumstances giving rise to the winding up of the company were directly attributable to the acts or omissions of the related company. This absolute test has now been removed such that the court can now have regard to a number of circumstances now set out in Section 599 in considering whether or not to make a contribution order.
Relief under Section 599 has been seldom deployed by liquidators given that the absolute test was a very difficult evidential burden. It will be interesting to see if the amendments made under Section 599 will lead to more actions being considered by liquidators against related companies.
