The Employment (Collective Redundancies and Miscellaneous Provisions) and Companies (Amendment) Act 2024 (Act) has been signed into law but awaits a commencement order to bring it into operation.
In summary, the Act amends the Companies Act 2014 (Companies Act) by modifying the attribution test for related companies to contribute to the debts of the company being wound up, broadening the operative time for unfair preferences, and varying the test for reckless trading.
1. Related company contribution
Section 599 of the Companies Act allows a liquidator to seek a court order directing a related company to contribute to assets of the company in liquidation (contribution order). Previously, the court had to be satisfied that the acts or omissions of the related company caused the liquidation before it could make a contribution order. The Act removes this requirement, expanding the court's jurisdiction to make a contribution order in that the extent to which the winding up of the company is attributable to the acts or omissions of the related company, is now only one of a number of matters to which the court must have regard.
2. Return of property improperly transferred or property deemed to be an unfair preference
The time limit for making an unfair preference is extended under the Act from six months from the date of the company's winding up (or two years in the case of a connected person) to "such longer periods as the court considers just and equitable having regard to the circumstances of the act concerned."An unfair preference is deemed to arise where priority or preference is given to one creditor over other creditors at a time when the company is insolvent. The current position is that the transfer to the creditor had to take place within six months (or two years for connected persons) of the commencement of the winding up. The Act will allow a court to extend that period when just and equitable.
3. Return of property
The Act amends Section 608 of the Companies Act (order for the return of property improperly transferred) such that payments made by a company in the ordinary course of business will be specifically excluded.
4. Reckless trading
The new section 610(8) of the Companies Act shifts the test for reckless trading from subjective to objective. It does this by removing the requirement that an officer of the company must "knowingly" be a party to reckless trading before a court can impose personal liability for the company's debts and liabilities. In addition, the provision on relief from personal liability is tightened, such that relief will only be granted by a court where it is satisfied that the person took steps to minimise loss to the company's creditors.
Conclusion
The Act introduces important changes to the above provisions under the Companies Act. It expands a court's jurisdiction to order the return of assets to a company in liquidation for the ultimate benefit of creditors. It also adds to the armoury of liquidators to look back on disposals that took place when company officers knew, or ought to have known, that the company was unable to pay its debts. The change to the reckless trading provisions, allowing for the imposition of personal liability on directors/officers by reference to an objective test, will likely result in increased applications to the court.
Contributed by Joanne Cooney and Gail Nohilly.
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