# Liquidation and redundancy fraud by employer



## Joe_scooter (17 Dec 2009)

Dear Sirs,

I have a problem that I need some assistance with. A relative of mine is working for a company that in reality should have ceased trading long ago. However, for whatever reason it has not ceased to trade. The staff are currently on protective notice (which was extended from a first stint). It has come to my attention that what could be happening is that the owner could be running it into the ground deliberately so as to avoid the cash payout of a statutory redundancy payment. The scenario is as follows:

The company has X funds. The part business owner (it would appear) wishes to take a certain level of funds from the available cash amount and what would be left is insufficient to payout the cash total of the statutory redundancy. Whether the business owner wants to take the amount he seems to have earmarked before the liquidator is appointed) who gets his fee in a liquidation first prior to following the order of priority set down in law which usually means the employees at the bottom) is anyone's guess but it would seem that the business owner is effectively forcing a situation whereby the employees are left in a situation whereby they have to claim directly off the department of Enterprise which could take 6 months. Therefore leaving the employees effectively penniless and unable to pay their mortgages etc. The employer would effectively be claiming inability to pay through the back door. 

My questions:


Prior to the formal liquidation process commencing what legal rights if any do the staff have that they could use to prevent the above sequence of events occurring?
Can they take out some form of injunction to prevent this?
Can they petition for a liquidation as a pre-emptive strike to prevent the employer taking money out at a point in time prior to the liquidation process which would mean the law kicking in (but in his favour rather than the employee who has less financial resources) resulting in A the liquidator getting his slice prior to the various secured, unsecured creditors getting their monies before the pot available for statutory redundancy and distribution to the shareholders is determined. Effectively it's the same as the captain going down with the ship. The shareholders are often (and should be due to how the law is written now) in the captain's shoes but in this case the captain (part shareholder) is trying to get money out PRIOR to the liquidation procedures commencing meaning in effect he has got around the liquidation law. The employee cannot get around the law.
In the event of the employee getting screwed over in the above scenario do they have other recourse? Could this action result in the director being reported to the Director of Corporate Enforcement on reckless trading grounds? Would the above action create an obligation on a liquidator to report the company director to the Director of Corporate Enforcement? and if yes could the employee report the liquidator to the Auditing Standards Board for failing in their duties resulting in the liquidator possibly losing their practising certificate?
It would seem that the employer is looking to get to a point in time where (through his own actions by carrying out an advance asset stripping through the taking of cash out of the company prior to commencement of liquidation proceedings) the company would claim inability to pay the statutory redundancy payment and this is what I am looking to prevent.
I would very much welcome your assistance in this regard as my relative is caught in a very difficult and fraught situation due to the circumstances. My relative has worked 23 years for this employer and deserves better treatment than what looks like could be happening.


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## pjmn (17 Dec 2009)

I'm not an expert on this issue, but my thoughts....

a) It would appear that collectively ye believe owner/director is acting recklessly in their role as director, which I am sure is in breach of Company Law and I would have thought that this should be raised with the CRO for advice....

b) Given your own expertise in the tax area, would you have contacts say in the accountancy profession that might be able to advise you?

pjmn


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## jack2009 (17 Dec 2009)

As it stands the employees are not creditors of the company and therefore cannot look to appoint a liquidator.  But perhaps a supplier who has not gotten paid would be interested in making a High Court application to appoint a liquidator.  But this still means that your relative will be paid by the DETE and have to wait c. 6 months so it does not really solve your problem.

How certain are you about the current status of funds and the directors ear marking funds for their own pockets? 

If the company does go into liquidation the liquidtor will be required to investigate the actions of the directors and also the movement of any funds and ensure that nocreditor was given preference.  Therefore any evidence that you have should be kept and sent to the liquidator if one is appointed.  Furthermore, any copy any correspondence that is sent to the liquidator to the ODCE as the liquidator is required to make a report to the ODCE determining whether the directors acted honestly and responsibly within 6 months of their appointment.

Perhaps what is happening is that the company is struggling and that while on one hand it is apparrent that the company should cease trading but on the other hand maybe the directors hare hoping that things will pick up etc.


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## Joe_scooter (18 Dec 2009)

At what stage in the process would the employees become creditors of the company? I know this may be a very simplistic sounding question but I am focussing in on what the law says about creditors rather than our lay understanding of what a creditor and when someone is regarded as a creditor. 

The law is the bible rather than the lay understanding so if someone can refer me to the relevant sections of the Companies Act 1963, Companies Act 1990 or earlier acts where relevant I would be most grateful. I know Section 285(2) sets out the priority of payments in a winding up. 

According to Section 214 of the Companies Act 1963 as amended by Section 123 of the Companies Act 1990 a creditor must have lodged a demand with a company at it's registered office for payment of a debt which must be of at least 1270 Euro (if I recall correctly) and the debt must have been ignored for at least 3 weeks before the creditor can lodge a valid petition with the courts for a company to be wound up. 

However, I have read in Section 215 of Companies Act 1963 that a petition for a winding up of a company can be presented by the company itself, any creditor or creditors (as a grouping) and the section specifically states that "creditor" in this instance can include any contingent or prospective creditor. Therefore the question in this case is whether an employee with an RP50 in their posession and entitled to redundancy can be regarded as a prospective creditor and as such in a position (as a result of the combined effect of Section 214 and 215 of the Companies Act 1963) to be eligible to lodge a valid petition to the courts for a winding up? If that is the case then could employees in this situation be in a position to lodge what I would call a pre-emptive strike petition which would then prevent the employer from moving money around and out of company accounts due to the fact that the liquidation process will have been formally commenced?



jack2009 said:


> As it stands the employees are not creditors of the company and therefore cannot look to appoint a liquidator. But perhaps a supplier who has not gotten paid would be interested in making a High Court application to appoint a liquidator. But this still means that your relative will be paid by the DETE and have to wait c. 6 months so it does not really solve your problem.
> 
> How certain are you about the current status of funds and the directors ear marking funds for their own pockets?
> 
> ...


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## Joe_scooter (18 Dec 2009)

pjmn said:


> I'm not an expert on this issue, but my thoughts....
> 
> a) It would appear that collectively ye believe owner/director is acting recklessly in their role as director, which I am sure is in breach of Company Law and I would have thought that this should be raised with the CRO for advice....
> 
> ...


 
On your point b the answer would be yes I would have contacts but some of those contacts would actually be linked with the people acting on behalf of the employer and once one starts asking "awkward" questions in this country whispers start flowing very quickly so I would avoid that route if I could. I was a little too prominent in my area to be able to start asking discreet questions now. 

I put up a posting on this thread before replying to you which you might review. Maybe you have an opinion on what I say in that?


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## pjmn (18 Dec 2009)

Joe, as I said in my first posting I'm not an expert in this area...

Understand your comment re my point b) in first posting - can see how that would be awkward, I just thought there might be an opportunity to seek advice from that source...

In my 'lay-man's' view there appears to be two potential angles to this case - a) the route you seem to be leaning towards, which is establishing if the employees in effect can be deemed creditors and thus in turn force a liquidation - I think Jack has given you guidance on this angle - however would it be possible to seek advice from the ODCE to clarify further for you?

b) the second angle (which is where I was coming from) is whether the existing director(s) are acting either recklessly or fraudulently - I accept as per Jack's posting that the Liquidator if/when appointed has the right to go back on transactions in the run up to the liquidation commencement, but that may or may not assist employees at that stage - personally if I genuinely thought the director(s) were acting in this manner then I'd try and tackle it now by seeking either legal advice from a commercial lawyer of through ODCE.

Sorry I can't be of any more help than that....

pjmn


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## Joe_scooter (18 Dec 2009)

Have already tried ODCE route. "We are not legal advisors, we are not qualified to give advice" was the comment back. Funny that, given that they are required to ENFORCE the law. 

Waiting for the liquidator to be appointed is too late. I want to protect the vulnerable people with less financial resources by getting them into a position where they could prematurely trigger the liquidation and then request the liquidator to review all transactions from all bank accounts going back a particular period. The longer one waits the greater the likelihood is that a transaction could fall out of the window of time to be looked at. There needs to be more protection for employees in this instance. 

I accept your point b. In my opinion I would have to think, given my expertise, that there is a reckless trading issue here but that is a very tircky area to get over from a burden of proof perspective. 

Again, going to a commercial lawyer is tricky in that you might be seen (as a result of forcing the issue for the employee) to be effectively biting the hand that feeds you. People have elephants memories unfortunately. Problem is, no-one in ODCE wants to put their neck on the block for fear of prjudicing anything down the line and TD's are not qualified to provide advice, CRO probably the same given that they are only processors of forms so really the well off (who tend normally to be employers) have the system stacked against the weak. Talk about economic predators.



pjmn said:


> Joe, as I said in my first posting I'm not an expert in this area...
> 
> Understand your comment re my point b) in first posting - can see how that would be awkward, I just thought there might be an opportunity to seek advice from that source...
> 
> ...


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## Mpsox (18 Dec 2009)

There's a lot of "mights, maybe and possibly" going on in the OP on here which always makes me wonder if the staff are not being a little bit paranoid

However, let's assume there is some substance in this

Firstly, see below, which is a good summary of what will happen in terms of payments in terms of a company going into insolvency
http://www.citizensinformation.ie/categories/employment/unemployment-and-redundancy/redundancy/redundancy-payments?tab=more#employers%20insolvency

Note in terms of getting the DETE to pay the redundancy, the employer will have to provide recently audited accounts/statement of affairs from the auditor or a letter from his accountant/solicitor stating inabiility to pay. If the DETE does not accept these, they are within their rights to come looking for the money from the employer.

Lastly you refer to the "part business owner". What are the rest of the owners doing about this? Are they involved in any way?


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## jack2009 (18 Dec 2009)

The ODCE is not responsible for giving advice, if you have any evidence forward it to them and the DPP.

Appointing a liquidator by way of the Courts will not improve the situation of your relatives as employee claims will have to be processed by the DETE!High Court applications will at minimum cost €10,000 but probably closer to €20,000.    Assuming you can prove that you are a creditor of the company you will also have to prove why you are making the application to have the company liquidated.

So again I ask have you got proof or are you purely working on assumptions!


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