There is continuous pressure for group structures to be lean and cost-efficient. In the aftermath of a reorganisation, a group is often left with several corporate entities which are dormant, and often surplus to requirements. The Companies Act 2014 provides for different methods companies can be dissolved, including for the first time, the merging of two or more Irish companies.
Examine your group entity
Carrying out an internal diligence at an early stage and evaluating the assets, liabilities, tax position and material contracts of any target companies will dictate the method of rationalisation chosen. It will also identify how the balance sheets of target companies may be tidied up in advance of rationalisation.
Tip: Tidying up your balance sheet in advance through intragroup transfers, distributions or contributions will reduce rationalisation costs.
An application for strike off can be made to the Registrar of Companies once certain conditions are met. A crucial condition is that the assets and liabilities of the applicant company must each be €150 or less. A strike off application has the merit of being efficient, quick and cost-effective. However, there are other aspects to consider. The liability of every director, officer and member of the company shall continue to exist and may be enforced as if the company had not been dissolved. The CRO, upon application, may restore a struck off company within one year of its dissolution while the court may restore a struck off company, on the application by certain persons, before the expiration of twenty years of its dissolution.
Tip: Ensure your company registration filings and tax filings are up to date. Failure to have these filings up to date can significantly delay the strike off process.
Tip: Any assets belonging to the company at the date of strike off, or which vest after strike off, will vest in the Minister for Finance. It is important that all group assets have been dealt with in advance to avoid this.
Members voluntary liquidation
The members of a solvent company can pass a resolution to wind up a company, following the making of a declaration of solvency by the directors. An independent person’s report (by a person qualified to be auditor of the company) is required. A liquidator will be appointed to wind up the affairs of the company and distribute its assets to the members.
Tip: The fees of both the liquidator and the independent person should be considered as these will add to the cost of rationalisation.
Tip: Making a declaration of solvency without reasonable grounds is an offence which can be punished by fine, imprisonment and the directors can be held personally liable for the debt of the company. Discharging the majority of the company’s liabilities in advance can often provide comfort to directors being asked to give a declaration.
Mergers under the Companies Act 2014
The Act introduced the concept of Irish domestic mergers for the first time. There are three types of mergers provided for under the Act. Each type of merger results in the assets and the liabilities of one company, or several companies, being transferred to another company. The company who transferred its assets and liabilities is subsequently dissolved without going into liquidation. Mergers can be put into effect by a court application or by using the summary approval procedure, which requires a declaration as to the solvency of the surviving company, by the directors of each merging company.
Tip: Is it important to discuss any merger with your tax advisors. A transfer of assets may trigger tax liabilities and while stamp duty relief is available certain clawback conditions will apply. This may affect strategic planning for the group after the rationalisation.
Tip: A merger can be a quick method of rationalisation, even with the mandatory 30-day inspection window, particularly for wholly owned dormant subsidiaries.
Understanding the methods of dissolution available under the Companies Act 2014 and the assets and liabilities of the target company is critical for making an informed and strategic decision on rationalisation. Preparing the company by carrying out diligence and tidying up its balance sheet will make the rationalisation process more time and cost efficient.