‘Lift corporate veil’ plea in insolvency case 'walkaways'
A review of safeguards for employees and unsecured creditors when a firm goes under has called for beefed-up measures to deal with ‘walk-aways’ where directors fail to formally liquidate their companies.
The review calls for tougher sanctions for directors who fail to seek the appointment of a liquidator to an insolvent company. The proposals also call for improved transparency and accountability.
Eighteen months after it was convened, the Company Law Review Group (CLRG) on the Protection of Employees and Unsecured Creditors delivered its report for consideration by Tánaiste and Minister for Business, Enterprise and Innovation, Frances Fitzgerald.
Failure
The Group was asked to focus on corporate governance; corporate insolvency; share capital; directors’ duties and personal liability along with more general provisions in company law and a review of all relevant provisions of the Companies Act 2014.
The brief did not specifically mention department store Clerys by name but its 2015 failure, and subsequent treatment of its workers, is believed to have prompted the review.
A Department spokeswoman said “The Minister’s request did not refer to any particular company [such as Clerys] but rather was prompted by concern that there were potential contexts in which the privilege of limited liability in company law could be used to avoid a company’s obligations to its employees and to unsecured creditors.
“In consideration of this matter, the CLRG was asked to explore:
- Instances where the corporate veil can and should be lifted that could be adopted in statute.
- The potential strengthening of obligations on directors to a company’s employees as part of directors’ duties.
- Building-in checks and balances in statute which would strengthen obligations to employees for better protection in company restructuring.
- Circumstances in a liquidation of an insolvent company where the debts or liabilities of that company can be met from solvent companies in the same group or in related companies.”
- The Review Group’s proposals include a statutory duty for directors towards a company’s creditors in insolvency, and greater emphasis on the treatment of employees in the liquidator’s report to the Office of the Director of Corporate Enforcement.
The report also recommends that a provisional liquidator must seek specific powers from the court when they intend to terminate employee contracts or cease trading.