Company restorations in the High Court - key considerations

Introduction

A few years ago, a company director telephoned me seeking legal advice. He recounted how his company was on the brink of obtaining approval for a substantial bank loan when a bank official discovered at the eleventh hour that, in fact, the company had been struck off the register almost five years previously. "I was sitting there in my bank manager's office, red faced" said the director. "We needed the loan urgently and we did not get it".

Strike-off and restoration

Companies are struck off the register on a daily basis. Perhaps surprisingly, many directors remain entirely unaware of their company's untimely death. Thus, the company continues trading, seemingly oblivious to the potential consequences. For one thing, a company struck off the register is no longer a legal entity and, therefore, any transactions purportedly entered into by it are, from a legal perspective, transactions entered into personally by those representing the company. For example, a director who signs a contract on the company's behalf is actually signing the contract on his own behalf. He is personally liable under the agreement if something goes wrong.

These days, most people entering into substantial agreements with a company will first check its status to ensure that it has not been struck off the register. It is a free and easy exercise which involves only entering the company's name into the Companies Registration Office (CRO) website.

Shareholders are sometimes happy to allow their company to be struck off the register. That normally arises where they do not intend to continue trading and believe it is easier to simply abandon the company than go to the expense of formally liquidating it. On its face, this seems like a legitimate way of putting the company's affairs to rest. However, the practice is not lawful and opens the possibility of criminal prosecution against the company and each of its directors, as well as a restriction/disqualification order against the directors. The Companies Act 2014 prescribes a specific procedure for voluntary strike-off which is an alternative to liquidating solvent companies and should be used in these circumstances.

It is not uncommon for the shareholders or directors to realise many years after their company has been struck off the register that they need it after all. For example, it may be in possession of assets previously overlooked, it may have a valid insurance claim in respect of historic events or it may have a legal claim against a third party which it is unable to litigate while dissolved. Other parties too may wish to bring the company back to life, such as creditors thinking about issuing legal proceedings against it.

Restoring a company to the register

A company which has been struck off the register for less than 20 years may be restored to the register by application to the CRO or the High Court (or the Circuit Court in certain cases). Applications to the CRO, also known as "administrative restorations", are made pursuant to section 737 of the Companies Act 2014 where the company has been dissolved for less than 12 months. If the company has been dissolved for more than 12 months then the application is made to the High Court under section 738 of the Companies Act 2014.

High Court restoration

Companies are typically struck off the register for one or both of two reasons. Either they have failed to file their annual returns as required under the Companies Act or they have failed to file financial statements with the Revenue Commissioners as required under the Taxes Consolidation Act 1997.

Prior to striking the company's name off the register, the CRO will send "warning letters" to the company's registered address requiring the company's directors to remedy the situation. When that does not happen within the time stipulated in the letter, the company will be struck off the register and a notice to that effect published n the CRO Gazette.

When contemplating an application to the High Court for restoration of a company, it is first necessary to identify the reason it was struck off and to remedy that situation. Typically this means that an accountant will need to prepare all of the company's outstanding returns and accounts for the years during which it has been dissolved and also the years prior to that which led to its dissolution in the first place. Neither the CRO nor the Revenue Commissioners permit formal registration of the outstanding documents until the court has made a restoration order. That is because the company is no longer in existence and, as such, its online accounts with CRO and Revenue are effectively frozen. While the documents cannot be registered, they should nevertheless be delivered to CRO and Revenue so that each of those bodies can conclude that the documents are ready for registration as soon as the restoration order is made. It will be necessary to obtain a "letter of no objection" from each of them in order to make the High Court application.

The company's directors and Secretary will need to sign the returns and accounts. If the directors or Secretary are no longer acting (due to retirement or death), new officers may be appointed for the purposes of signing the documents. It is the CRO's policy in those circumstances to permit the filing of a Form B10 (change of directors and secretary) notwithstanding that the company is dissolved.

Letters of no objection

The Companies Act does not mandate "letters of no objection" in order to succeed in a restoration application; however, the Courts now require them as a matter of practice. The letters are obtained from the Revenue Commissioners, the CRO and the Chief State Solicitor's Office (CSSO). Revenue charges a fee of €550 for issuing its letter while the CSSO's fee is €350. These three bodies are notice parties to the application which means that the court documents must be served on all of them in advance of the hearing date.

Each agency has various requirements before it will issue a letter. For example, the Revenue requires that the person swearing the affidavit for the application should give an undertaking, on his/her own behalf and on behalf of the company, that all outstanding taxes will be discharged within one month of the granting of the restoration order. This appears to be a particularly onerous requirement and it is unclear whether there is any legal basis for it. Indeed, it seems to run contrary to the well-established principle that a company's officers are not generally liable for its debts. As yet, I am unaware of any formal challenge to that requirement in a restoration application. The undertaking appears not to be enforced - or even enforceable - in practice.

From a procedural point of view, the letters of no objection from Revenue and CSSO are obtained after proceedings are issued and served on them. Since it can take a few weeks for the letters to issue, it may be necessary to adjourn the hearing of the application if the letters are not received by the first hearing date. The letter from CRO may be obtained before or after the proceedings are issued.

Effect of restoration order

The making of a restoration order by the Court does not have the automatic effect of restoring the company to the register. That only occurs once a certified copy of the perfected order is delivered to the CRO along with a registration fee of €15. The company is restored once the order had been registered by the CRO.

Section 738(3) of the Companies Act 2014 provides that a company registered in this way is deemed to have continued in existence as though it was never struck off the register. In other words, any transactions entered into by the company during the period of its dissolution are deemed to have been lawfully entered into notwithstanding that the company lacked the capacity to execute them at the time they were entered. The provision stops short of deeming any outstanding returns filed as part of the restoration application to have been filed on time. Therefore, it is still necessary to pay late filing fees in respect of them.

Cost of High Court restoration application

High Court restoration applications are expensive. First there are the fees payable to Revenue and CSSO for obtaining their standard letters of no objection. Then there is stamp duty on filing court documents. Not to mention the fees for filing outstanding CRO returns. And finally there are the fees payable to the professionals, the accountant, solicitor and barrister, required to make the application. Although he application itself is normally uncontroversial (normally made without objection from any party), it does involve significant amounts of work and it may take several weeks to obtain the order. On average, we find it takes between 4 and 8 weeks depending on court lists.

We offer a fixed fee for restoration applications. More information is available here.

Author: Mahmud Samad BL
Publication date: 11th June 2021

CORPORATELEGAL