If a business closes and cannot pay its debts, the directors of the company are expected to begin a process to put it into ‘liquidation’. They should advertise a meeting of creditors (creditors are all of the people and businesses a company owes money to). The job of this meeting is to appoint an independent person to act as liquidator to try and recover as much money as possible to share out amongst creditors, starting with so-called ‘preferential creditors’ (defined in law as employees and Revenue, the Irish tax office).
However, when many colleges have closed, the directors have simply shut the doors and walked away, leaving the legal status of the company in a kind of limbo.
When this happens, students who are owed money have a big problem. Although it is possible for creditors to go to court to force a company into liquidation and appoint a liquidator this is very, very expensive. Any creditor wanting to take this step would need to have the money to pay fees for a solicitor and barrister to represent them in court and to guarantee payment for a liquidator for their fees to wind-up the company (which on its own would probably require at least €10,000). It is probably only a realistic option for a preferential creditor who is likely recover money from a company because they are a priority to get paid first from the available funds, before everyone else.
Even in a liquidation situation, the chance of students receiving any money back is limited – as we explain here – but without a liquidator in place to wind up the company the situation is worse:
- There is no independent person with the power to check the financial records of the company and assess how much money is owed to whom (by definition there will be more money owed than can be recovered from the assets of the company, so identifying debts is not the same as the liquidator being able to pay them)
- There is no independent person with the power to check if the directors ran the company properly (a liquidator may find evidence that can be used to ban a person from being director of another company or for a court case to try and make them personally liable for debts to recover additional funds to pay creditors)
In other words, walk-away directors have been able escape proper financial scrutiny of their running of a college.
If a college business does not enter liquidation, students owed money cannot expect any form of refund, unless they paid on a credit/debit card and can use chargeback to claim a refund through their bank. Even this safeguard may depend on a company formally entering liquidation.
Alongside the closures, ICOS has been highlighting the issue of walk-away college directors and the major flaw it exposes in company law – one that has now let down thousands of students.
The Endgame: Strike-Off and Dissolution
A business which has not gone into liquidation and has stopped submitting tax returns will be listed for ‘strike-off’ by the Companies Registration Office (CRO). There is a short period during which directors of a company can still act to restore the status of the limited company to normal by complying with CRO requirements. However, in cases where directors have simply walked away this obviously will not happen.
When the strike off period ends, a company is dissolved and ceases to exist as a legal entity.