FE-1 Company Law 2 — Questions and Answers
Question 1: What is the process for winding up a company in Ireland under the Companies Act 2014?
- Voluntary winding up (members' or creditors') or compulsory winding up by court order on specified grounds (Correct answer)
- Only the Revenue Commissioners can wind up a company
- A company can only be wound up if all shareholders agree unanimously
- Winding up is automatic when a company fails to file annual returns
Correct answer: Voluntary winding up (members' or creditors') or compulsory winding up by court order on specified grounds
The Companies Act 2014 provides two main routes: voluntary winding up (initiated by the company, either as a members' voluntary where the company is solvent, or creditors' voluntary where insolvent) and compulsory winding up by the court under section 569.
Question 2: Under the Companies Act 2014, what is reckless trading and what are its consequences?
- Carrying on the business of a company knowing it has no reasonable prospect of paying its debts, leading to personal liability for directors (Correct answer)
- Trading during a public holiday without a licence
- Making risky investments with company funds
- Failing to file accounts on time
Correct answer: Carrying on the business of a company knowing it has no reasonable prospect of paying its debts, leading to personal liability for directors
Section 610 of the Companies Act 2014 provides that if a company is wound up and its directors carried on business knowing there was no reasonable prospect of creditors being paid, the court may declare directors personally liable for all or part of the company's debts.
Question 3: What is the significance of the company constitution under the Companies Act 2014 for an LTD company?
- It is a single document that replaces the old memorandum and articles of association, setting out the company's internal rules (Correct answer)
- It is an optional document that companies may choose to adopt
- It is identical to the old memorandum of association
- It is filed with the Revenue Commissioners rather than the CRO
Correct answer: It is a single document that replaces the old memorandum and articles of association, setting out the company's internal rules
Under the 2014 Act, an LTD company has a single-document constitution that replaces the former memorandum and articles of association. It contains the company's regulations and is supplemented by the Act's default provisions where not specifically excluded.
Question 4: What is the role of the Companies Registration Office (CRO) in Ireland?
- To register companies, receive and publish statutory documents, and maintain a public register of company information (Correct answer)
- To investigate fraud within companies
- To collect corporation tax from companies
- To regulate the stock exchange
Correct answer: To register companies, receive and publish statutory documents, and maintain a public register of company information
The CRO is responsible for the incorporation of companies, the registration of business names, and the receipt and registration of post-incorporation documents such as annual returns. Its register is available for public inspection.
Question 5: Under Irish company law, what is a preferential creditor in a winding up?
- A creditor whose debts are given priority in payment over ordinary unsecured creditors, such as employees owed wages and Revenue for certain taxes (Correct answer)
- A creditor who holds a fixed charge over company assets
- A creditor who lent money to the company first
- A shareholder who holds preference shares
Correct answer: A creditor whose debts are given priority in payment over ordinary unsecured creditors, such as employees owed wages and Revenue for certain taxes
In a winding up, preferential creditors (defined in section 621 of the Companies Act 2014) are paid before ordinary unsecured creditors. They include employees owed wages, holiday pay, and certain amounts owed to the Revenue Commissioners.
Question 6: What is the restriction of directors under the Companies Act 2014?
- A court order preventing a person from acting as a director unless the new company meets minimum capital requirements (Correct answer)
- A ban on directors holding shares in other companies
- A restriction on directors' salaries
- A limit on the number of companies a person can direct
Correct answer: A court order preventing a person from acting as a director unless the new company meets minimum capital requirements
Under section 819 of the Companies Act 2014, where a company is wound up and is unable to pay its debts, the court may restrict a director from acting as a director of any company for 5 years unless that company meets minimum capital requirements (€500,000 for PLC, €100,000 for LTD).
FE-1 Company Law 2
What is the process for winding up a company in Ireland under the Companies Act 2014?