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It may be time to consider how the burden of a solvent winding on those charged with governance can be eased by the appointment of an independent liquidator.
Here at RSM Ireland we are frequently asked by clients to act as accountants, tax advisors or auditors. We also receive requests for assurance services such as financial due diligence assistance in the M&A space. Recently we have seen a significant increase in requests for assistance in the winding up and dissolution of various entities and structures.
What happens to those structures that need to be wound up, not necessarily because of financial problems, but because by their very nature they have run their course or the plans for which they were initially earmarked never came to fruition? More a case of corporate euthanasia than execution!
Typical reasons for winding up a Jersey structure
There are many reasons why companies need to be wound up, or other entities, such as partnerships that need to be dissolved. These include:
- A tidy up exercise - where, for example, the entity is dormant or inactive;
- Where a change in legislation or the beneficial owners circumstances renders a structure ineffective and it is no longer serves its original intended purpose; or
- The end of life of a structure, for example a Private Equity Fund that has run its course;
Whose responsibility is it?
The responsibility for the winding up of a solvent structure rests with those charged with Corporate Governance, which in the case of companies is the board of directors. In some cases the process is straightforward and can be conducted by the board. There are also cases where the board may wish to engage the services of an independent liquidator to carry out the process.
When should you consider the appointment of a liquidator?
The appointment of a liquidator to conduct a winding up allows the directors to “move on” and concentrate their efforts elsewhere in the knowledge that the winding up will be conducted and concluded without their input. There will also be occasions when the appointment of an independent liquidator is more appropriate than conducting the process internally. Examples of such situations include;
- Where there is a “public interest” in the entity to be wound up such as an investment vehicle;
- Where it is group policy; or
- Where the board lack either the experience or knowledge of the process to be followed.
Of course, in the case of an insolvent entity, a liquidator will always be required.
At what point should you engage with a Liquidator?
When an orderly winding up is to be conducted by a liquidator, the board of directors should consider engaging with the liquidator well in advance of the date on which the winding up will commence. A liquidator will be able to assist the board with the winding up process by providing advice to the directors on matters to be considered and steps to be taken prior to the formal appointment. A liquidator will also advise on the formal documentation and procedures to be followed to place the company into winding up.
Process for other structures such as Limited Partnerships
The process for the dissolution of a Limited Partnership, or other vehicle, is governed by law and that particular entity’s constitution. In the case of a Limited Partnership this will be the Limited Partnership Agreement.
The process requires an orderly distribution of assets and settlement of liabilities and generally completes on the filing of a Notice of Dissolution. There is no requirement to appoint a liquidator and the process should be managed by the general partner or equivalent. Generally the constitution of a Limited Partnership will allow for its continuance beyond its fixed life to permit the dissolution to take place.
How about multi-jurisdictional issues?
The winding up of a structure that has operated in a number of different jurisdictions can be challenging. The timing and coordination of the process in different countries, in addition to the complexity of the different legislative requirements, need to be factored into the planning. The expertise necessary to conduct such an assignment will not necessarily be available internally to the board of a company. Our experience is that the appointment of an independent liquidator with access to a global network of professionals with expertise in this area will ensure the correct process is followed and cross jurisdictional issues are dealt with correctly. We have also found that coordinating all aspects of a multi-jurisdictional winding up through one office is a more effective way of approaching the challenge.
While the process of a solvent winding up may seem straightforward, as always the devil is in the detail. Directors must ensure they have discharged their duties in line with their obligations to ensure no reprisals. If you considering winding up a structure by appointing an independent liquidator then the earlier you engage with that person the better!
Tips for making the process smooth
- Early engagement with a liquidator. Take advice at an early stage from a suitably qualified professional. They can greatly reduce the burden and risk of getting it wrong
- Audit. Where audited accounts are prepared consider the timing to coincide with their approval.
- Statutory records/minutes. Ensure minutes and/or resolutions of directors/trustees/partners and fully up to date and readily available.
- Coordination. A single nominated person within the organisation to work with the liquidator or relevant professional ensures an efficient process.
This article is based on our understanding of the current legislation, and should not be considered as legal and professional advice, which should be sought
