13th July 2017
The Tánaiste and Minister for Enterprise and Innovation, Frances Fitzgerald TD, today published the report of the Company Law Review Group on the Protection of Employees and Unsecured Creditors.
The Company Law Review Group was requested to review company law with a view to recommending ways company law could be potentially amended to ensure better safeguards for employees and unsecured creditors. The Tánaiste today thanked the members of the Company Law Review Group for their report and also welcomes the comprehensive and substantive nature of the review which the CLRG, and its specially convened committee, had undertaken over a period of 18 months.
The report found that overall the existing protections and remedies for employees and unsecured creditors in the Companies Act 2014 were comprehensive. To further improve outcomes for employees and unsecured creditors, the report recommends measures for increasing transparency and oversight in the way in which employees and creditors are dealt with in insolvency. Its proposals include the introduction of a statutory duty for directors to a company’s creditors in insolvency, greater emphasis on the treatment of employees in the liquidator’s report to the ODCE and a new requirement that a provisional liquidator must seek specific powers from the court when they intend to terminate employee contracts or cease trading.
In addition, the report has proposed measures to alleviate the problems faced by employees and unsecured creditors as a result of informal insolvencies, also known as ‘walk-aways’, where company directors fail to formally liquidate their companies by introducing new sanctions for directors who fail to seek the appointment of a liquidator to an insolvent company.
The Tánaiste said: ‘Since the recession, the number of liquidations and insolvencies has greatly increased and the many difficulties experienced by employees and unsecured creditors in the wake of company insolvency have been evident throughout the country. I warmly welcome this comprehensive and substantive report which recommends a number of reforms which, it is hoped, will alleviate some of the issues employees and unsecured creditors have experienced in recent years. My Department is giving careful consideration to the recommendations in the Report. In addition, I would welcome the reaction of interested parties to better inform a response to the Report, which today's publication will facilitate'.
The CLRG report complements the findings of the expert report of Ms. Nessa Cahill BL and Mr. Kevin Duffy, which examined the legal protections for workers and the interface between company and employment law. Their report also confirmed that company law provides “substantial weaponry that could be used against directors and related companies to redress the effects of, and deter, harmful transactions” but these provisions are only of weight “if they are employed and seen to be employed”.
The CLRG report notes that irrespective of how comprehensive company law is, it is likely that there will always be a dearth of actions against directors in circumstances where there are insufficient finances available to fund litigation or where the prospective defendant would have insufficient funds to meet any award that might be made against them. The report suggests that the rule against maintenance and champerty, given the international trend towards third party litigation funding, may benefit from fresh consideration by the Law Reform Commission.
For further information contact: Press Office, D/Jobs, Enterprise and Innovation ph. 6312200 or press press.office@djei.ie
ENDS
Notes for Editors
Company Law Review Group - Report on the Protection of Employees and Unsecured Creditors
The Company Law Review Group
The Company Law Review Group is a statutory advisory expert body charged with advising the Minister for Enterprise & Innovation on the review and development of company law in Ireland. The Company Law Review Group report on the Protection of Employees and Unsecured Creditors is available at: Company Law Review Group report on the Protection of Employees and Unsecured Creditors
Recommendations in the report
The report provides a comprehensive analysis of the relevant provisions of company law. It makes a number of proposals for reform of the law, which are primarily concerned with amendments to company law.
Proposals for legislative change are offered in the report which, while not representing a panacea, could potentially address some of the difficulties experienced by employees and unsecured creditors in insolvency while improving transparency and accountability.
The report contains the following recommendations:
- The imposition of a statutory obligation on directors of companies to consider the interests of creditors where it appears that a company is, or is likely to be, unable to pay its debts as they fall due.
- A requirement that where it is the intention of a provisional liquidator to cease trading and/or terminate employees’ contracts of employment, the provisional liquidator must seek the specific power to do so from the High Court.
- Directors of insolvent companies who fail to arrange for the appointment of a liquidator will be automatically deemed to be restricted in accordance with section 819.
- The inclusion of a new question on the questionnaire used to compile the section 682 liquidator’s report. The liquidator of an insolvent company will be required to specifically address the consideration given to employees by the directors of the company in the period immediately prior to liquidation.
- The consideration of a scheme to help directors of insolvent companies who want to wind up their company but cannot afford to pay a liquidator to do so. The Self-Administered Liquidation is designed for small companies with relatively minor amounts of debt and aims to offer an inexpensive way for directors to dissolve companies.
- A legislative change to allow for access to the Social Insurance Fund for employees whose employer has not entered into formal insolvency.
Maintenance and Champerty
The rule against maintenance and champerty is designed to ensure that only parties with a direct interest in the outcome of an action can provide litigation funding for that action.It is designed to prevent people speculating in litigation for profit. Maintenance involves improper interference in civil proceedings often by way of the provision of financial assistance. Champerty is a form of maintenance where financial support is provided by a party with no connection to the dispute in exchange for a share in the spoils of the litigation or some other profit.
The rule against maintenance and champerty was recently confirmed by the Supreme Court in in Persona Digital Telephony Ltd v The Minister for Public Enterprise [2017] IESC 27. The Supreme Court confirmed that if there is to be any reform in this area, then that is a matter for the legislature and not the courts.
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