# Voluntary winding up and lease commitments



## Brendan Burgess (4 Jan 2010)

A contact of mine has a solvent business but it is losing money. It's probably unlikely to make money in the next few years. 

I have suggested that he stop trading and pay off his creditors. It will take about three months or so and he will be left with a company with around €20,000 in cash. 

He has a 21 year lease.  He would like to pay the rent up to date and then liquidate the company and distribute the cash. He may get his landlord's consent to this. 

Could the landlord insist on taking the €20,000 as the company has a commitment to him for unpaid rent for the rest of the lease? 

If he stops trading and pays off all his creditors, could the landlord claim that he had shown fraudulent preference to the other creditors. I would argue not as the debt is not payable until the next quarter. 

In practice, there is no point in going for a normal liquidation, as the liquidator would take all the debtors and cash and the creditors would not be paid anything. 

Brendan


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## number7 (4 Jan 2010)

If your contact is solvent is he not able to choose exactly how and who he pays even if he is planning to liquidate? 

Pay his creditors and then advise the landlord that he is planning to liquidate his business and ask to be released from his lease in exchange for paying up all rent due and possible a bit extra to smooth the transaction.

If the landlord is fearful of not being paid outstanding monies and is also aware that an immenent liquidation could expose him to losses he may be much more inclined to agree to the termination of the lease.


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## Brendan Burgess (5 Jan 2010)

> If your contact is solvent is he not able to choose exactly how and who he pays even if he is planning to liquidate?



No, he can't choose whom to pay. He must pay those to whom he owes money. 

He will probably stop trading. 
Collect in the debts and sell off the assets.
At that stage he will put the company into voluntary liquidation. 

Does anyone know if a company is put into voluntary liquidation, is the lease automatically surrendered? Or does the company (in liquidation) have any further obligations? 

Brendan


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## emaol (5 Jan 2010)

What should the landlord seek from a tenant in liquidation or examination? If the tenant is in liquidation but is still in possession of premises, the rent will often be regarded as an expense of the liquidation. This means that the rent is payable in priority to other debts.


Taken from
[broken link removed]


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## Brendan Burgess (6 Jan 2010)

I am obviously not explaining myself very well.

The company is solvent and is able to pay all its debts including the rent due up to date. Say the rent is paid in advance for the first quarter of 2010. There is no issue here of priority of creditors. They will all be paid. 

I want to know what happens if the company goes into a members' voluntary liquidation on 28th February and hands back the keys to the landlord. Is that the end of the lease and the company's obligations. Can the liquidator then distribute the remaining assets to the shareholders?


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## MandaC (6 Jan 2010)

Brendan,  what does it have in the lease regarding the company going into liquidation?  Most leases should have a clause.  This is the key here.

Part of the Voluntary Liquidation process is that the company should be able to pay its debts as and when they fall due. Also, the Directors are swearing that the company can pay all of its debts in full (see the form E12 on the CRO website)  in full within one year of the commencement of the winding up.   In this case, it wont be able to as it wont be around to fulfill the terms of its lease, so I would not see it to be as simple as handing back keys as and at whatever date.


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## RonanC (6 Jan 2010)

MandaC, that should read [broken link removed] on the CRO website

http://www.cro.ie/ena/statutory_declarations.aspx


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## jack2009 (6 Jan 2010)

If we were talking about a creditors voluntary liquidation then lease would be surrendered.  The only rent that would form part of a liquidation process would be the rent due by the liquidator if he/she took up temporary occupancy.

However, this is a members' voluntary liquidation so the company is liable for all rent that is due as per the lease agreement (look at the break out clause).  This may be in excess of the budgeted €20,000 surplus.  Is there a personal guarantee on the lease?  

Therefore you should advise your contact to stop trading and once all assets are realised calculate how much is due to all creditors including the landlord and then pay off preferential creditors and secured creditors (revenue and employees) and then split the remainder equally between the remaining creditors including the landlord.  If creditors do not agree to payment in full advise that the creditors voluntary route will be taken and that this will mean less money in the pot!

The landlord can claim fraudulent preference if your client has shown to pay off all other creditors knowing that there would be insufficient funds to pay the compensation that will be due the moment the premesis have been vacated.

Perhaps your contact is about to expose themselves personally by failing to hire a professional) in order save an insignificant amount of money.

The days of liquidators taking all of the assets in fees are gone due to increased competition and pressure to make a distribution when funds are available (quoted €12,000 for a CVl only this morning).


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## number7 (6 Jan 2010)

Sorry misunderstood

If all creditors other than the LL  are paid up prior to the VL then what options would be open to the LL?


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## number7 (6 Jan 2010)

Answered by Jack2009 while I was posting.


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## MandaC (6 Jan 2010)

Ronan C, you are right, E1 or Form 12, I am so used to called it Form 12 (old name), CRO constantly call it E1 to me.

If all the rent is due and payable(which I would take to be more than 20k,) then there would not be a surplus of assets, therefore no members voluntary liquidation option.  Then it becomes a creditors voluntary.

You really need to look at the lease under 1. break clause and 2. clauses specific to liquidation. (if any)

Number 7's original idea to approach the landlord and get a buy out (depending on what shows up in the lease agreement), may not be a bad one.  Without the lease, this is a very simple liquidation and would not need to merit huge professional fees.


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## mercman (6 Jan 2010)

The remainder of the lease would be classed as a Contingent Liability in the accounts of the company. As already accounted for, did he sign a Personal Guarantee for which he would remain liable for the debt owing on the remainder of the lease and also the condition of the property, depending on a dilapidations survey. 

Could possibly be a costly exercise, especially if the landlord has been aggravated.


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## Brendan Burgess (7 Jan 2010)

> However, this is a members' voluntary liquidation so the company is liable for all rent that is due as per the lease agreement (look at the break out clause). This may be in excess of the budgeted €20,000 surplus. Is there a personal guarantee on the lease?



There is no personal guarantee.
The rent due to date per the lease agreement has been paid. 

But the rent due in future has not been paid as it's not due. 

I have to stress that a few months after the company stops trading and disposes of its assets, it will be a shell company with €20,000 cash and an onerous lease. There will be no unpaid creditors other than the obligations under the lease.


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## jack2009 (7 Jan 2010)

What does your contact plan to do with the €20,000 so?  Use it to discharge the lease as it falls due but what about when the money runs out?  Or are you hoping to be able to negotiate for an amount less than €20,000.  If you can negotiate for less than €20,000 then everything is grand otherwise you then have an unliquidated insolvent company that is required to file accounts, tax returns, hold AGM's cro forms etc.

At an AGM the directors are supposed to agree on the future of the company but what will the directors do if at the AGN there are no funds left to pay the rent as it falls due?  If they do not decide to liquidate then they are acting irresponsibly!

Also will your contact not be in breach of the lease if the premises are uninsured and not occupied.  As soon as  the landlord sees the closure of the business they will be looking to ensure that they do not suffer a loss.

Without agreeing on what is due to the landlord in order to give vacant possession leads a breach of 297 of the Companies Act 1963.


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## Liquidator (12 Mar 2010)

If he liquidates all money in the company will go to the Liquidatation and will be passed out amongst creditors in the order:

Liquidation
Secured (employees, rev etc.)
Unsecured (rent, trade creditors)

If he can afford to pay these creditors from what is in the company he can do an MVL which could void the lease...depending on specific terms.  His best bet is to talk to an insolvency specialist.


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## jack2009 (12 Mar 2010)

Liquidator said:


> If he liquidates all money in the company will go to the Liquidatation and will be passed out amongst creditors in the order:





Liquidator said:


> Liquidation
> Secured (employees, rev etc.)
> Unsecured (rent, trade creditors)
> 
> If he can afford to pay these creditors from what is in the company he can do an MVL which could void the lease...depending on specific terms. His best bet is to talk to an insolvency specialist.




The priority of creditors outlined above is incorrect!  

Outside of those claims secured by fixed charges the ranking of claims is as follows:
1. Costs, charges and expenses of the liquidation.
2. Certain social insurance contributions.
3. Preferential creditors such as Revenue Commissioners, employees and Co. Co. rates.
4. Payments due to the holder of any floating charge.
5. Unsecured creditors.


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## Decgra (23 Jan 2012)

*Liquidation*

Hi,

I would like to get some advice regarding a voluntary liquidation of my business. It is a simple retail business that started trading in October 2010. Up until now my partner has been working in it but it doesn’t bring any money and we wouldn’t be able to pay staff. We have a 5 year lease with no break clause and no personal guarantees. We did pay a deposit, which we didn’t get back yet. There is no  mention of liquidation in the lease. We wouldn’t have any unpaid creditors, we will have paid the rent to date, but there will still be 3.5 years on the lease. 
Our questions are:
- What do we have to do to liquidate the company
- What happens to the lease after liquidation
- The company still owes us money, should we take it out and when

Any advice would be very much appreciated!


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## jack2009 (13 Feb 2012)

Dear Degra, 

Firstly, you mention that you are not able to pay staff but yet you dont have any unpaid creditors.  Does this mean you and your partner are putting cash into the company to keep creditors/employees up to date?

It would appear from your post that you company is insolvent and therefore in order to liquidate the company you would have to call a meeting of creditors.  

(In short) Section 266 of the 1963 Companies Act states that notices of the meeting of creditors must be sent by post to the creditors at least 10 days before the date of the meeting with proxy forms. Notice of the creditors meeting must also be advertised in two daily newspapers circulating in the vicinity of the registered office or principal place of business of the company. (the directors and shareholders are required to hold meetings also before the creditors meting)

The lease liability would rank as an unsecured creditor for the liquidation process.

I would not attempt to repay yourself any of the money that is currently owed to you at the moment.  The reason being that if the company does go into liquidation you will be requested to repay the money as you will have committed an offence (fraudulence preference payment.

Kind regards

Jack.


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