WINDING UP (SS 100-181 & 304-337)

McPherson’s Law of Company Liquidation
1. a process whereby the assets of a company are collected and realised, the resulting proceeds are applied by discharging all debts and liabilities, and any balance which remains after paying all costs and expenses of winding up is distributed among the members according to their rights and interests, or otherwise dealt with as the constitution of the company directs
s. 100 - Modes of winding up
1. by way of a winding up order made by the Court
2. by way of a voluntary winding up commenced by a resolution passed by the company
3. by way of a resolution of creditors passed at the watershed meeting
4. A voluntary winding up
  1. a creditors’ voluntary winding up where the company is insolvent and the liquidator is appointed by a meeting of creditors
  2. a shareholders’ voluntary winding up where the company is solvent and the liquidator is appointed by a shareholders’ meeting
  3. s. 139 - Declaration of solvency
    1. Where it is proposed to wind up a company voluntarily as a shareholders’ voluntary winding-up, the directors or, in the case of a company having more than two directors, the majority of the directors shall, before the date on which the notices of the meeting at which the winding up resolution is to be proposed are sent out, make a written declaration to the effect that
      1. they have made an inquiry into the affairs of the company
      2. at a meeting of directors, they have formed the opinion that the company will be able to pay its debts in full within a period not exceeding 12 months after the commencement of the winding up
    2. a statement of the affairs of the company
      1. the assets of the company and the total amount expected to be realised therefrom
      2. the liabilities of the company
      3. he estimated expenses of winding up, made up to the latest practicable date before the making of the declaration
    3. shall have no effect unless it is
      1. made at the meeting of directors
      2. made within the 28 days immediately preceding the passing of the winding up resolution
      3. lodged with the Director before the date on which the notices of the meeting at which the resolution for the winding up of the company is to be proposed are sent out
    4. If the liquidator at any time forms the opinion that the company will not be able to pay its debt in full within the period stated in the declaration of solvency, the liquidator must forthwith summon a meeting of the creditors and lay before the meeting a statement of the assets and liabilities of the company.
s. 162 COMPANIES ACT
1. Once the directors have determined that the company is unable to pay its debts, the directors should ensure that the company does not incur any further debts
2. A director of a company who believes that the company is unable to pay its debts as they fall due shall forthwith call a meeting of the Board to consider whether the Board should appoint a liquidator or an administrator
  1. the Board shall consider whether to appoint a liquidator or an administrator, or to carry on the business of the company
  2. a director fails to comply & at the time of that failure the company was unable to pay its debts as they fell due
    1. the company is subsequently placed in liquidation, the Court may, on the application of the liquidator or of a creditor of the company, make an order that the director shall be liable for the whole or any part of any loss suffered by creditors of the company as a result of the company continuing to trade
s. 137(2) - Where an application for winding up has been presented on the ground that a company is unable to pay its debts, the company shall not, without the leave of the Court, resolve that it be wound up voluntarily
102(2) - A petition to wind up by a company may be presented by
1. the company
2. a contributory or any person who is the heir of a deceased contributory or the trustee in bankruptcy of the estate of a contributory
3. a shareholder
4. a creditor, including a contingent or prospective creditor, of the company
5. a liquidator
6. the Director
7. the Financial Services Commission, where the company is a licensee thereof
102(5) - a petition to wind up may be presented where
1. the company is unable to pay its debts
2. the directors have acted in the affairs of the company in their own interests rather than in the interests of the shareholders as a whole, or in any other manner which is unfair or unjust to other shareholders
3. the Court is of opinion that it is just and equitable to do so
4. the company or its officers have persistently made default in complying with this Act
  1. Only the Director may present a petition on ground
5. The most frequent situation is where a creditor presents a petition on the ground that the company is unable to pay its debts.
s. 178 - Meaning of “inability to pay debts”
1. a company is presumed to be unable to pay its debts as they become due in the ordinary course of business where
  1. the company has failed to comply with a statutory demand
    Annotations:
    - A statutory demand is a written demand for payment of a sum due, served by a creditor on a company u It is a quicker method of chasing a debt than first obtaining judgment but if the demand is unsuccessful because the party on whom it was served has a valid defence, the company can apply for an injunction restraining the alleged creditor from presenting a winding up petition and the costs thereof will be payable by the petitioner. A minor error in the statutory demand regarding the amount due will not invalidate it.
  2. execution issued against the company in respect of a judgment debt has been returned unsatisfied
  3. a person entitled to a charge over all or substantially all of the property of the company has appointed a receiver under the instrument creating the charge
  4. a compromise between a company and its creditors has been put to a vote in accordance with Part XVII and Part XVIII of the Companies Act but has not been approved
s. 179 - 181 - Statutory demand
1. s. 179 - Evidence of inability
  1. On an application to the Court for an order that a company be put into liquidation, evidence of failure to comply with a statutory demand shall not be admissible as evidence that a company is unable to pay its debts as they become due in the ordinary course of business unless the application is made within one month after the last date for compliance with the demand
2. s. 180 - Statutory demand
  1. be in respect of a debt that is due and is not less than 100,000 rupees or such other amount as may be prescribed
  2. be in the prescribed form
  3. be served on the company
  4. require the company to pay the debt, or enter into a compromise under Part XVII or Part XVIII of the Companies Act, or otherwise compound with the creditor, or give a charge over its property to secure payment of the debt, to the reasonable satisfaction of the creditor, within one month of the date of service, or such longer period as the Court may order
3. . 181 - Court may set aside statutory demand
  1. on the application of the company to the Court
  2. served on the creditor
  3. within 14 days of the date of service of the demand
  4. the Court may extend the time for compliance with the statutory demand
s. 101 - Commencement of winding up
1. Where before the presentation of a petition to the Court under s. 102 a resolution has been passed by the company for voluntary winding up, the winding up of the company shall be deemed to have commenced at the time of the passing of the resolution, and, unless the Court on proof of fraud or mistake thinks fit to direct otherwise, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken.
2. Where an order directing the winding up of a company is made under s. 178(2)(g) of the Companies Act the winding up shall commence on the date and time specified in the order.
3. In every other case of a winding up by the Court the winding up shall be deemed to have commenced at the time of the making of the winding up order.
4. Determining when the a liquidation “commences” is important to determine when the liquidator takes control of the company affairs and from what point in time the liquidator can go back in time to challenge voidable or seek to impose liabilities on others.
  1. a liquidator is appointed under section 108(1), the Court shall record on the order appointing the liquidator the date on which, and the time at which, the order was made
  2. a liquidator is appointed under section 108(2), the board of the company shall cause to be recorded in the instrument appointing the liquidator the date on which, and the time at which, the liquidator was appointed
  3. a liquidator is appointed under section 100(2)(b), the shareholders shall cause to be recorded in the special resolution appointing the liquidator the date on which and the time at which, the special resolution is passed
  4. a liquidator is appointed by way of a resolution of creditors at a watershed meeting, the administrator shall record in the resolution the date on which and the time at which the resolution was passed
    Annotations:
    - The watershed meeting is the meeting of creditors called by the administrator to decide the future of the company and, in particular, whether the company and the deed administrator should execute a deed of company arrangement
5. If any question arises as to whether on the date on which a liquidator was appointed an act was done or a transaction was entered into or effected before or after the time at which the liquidator was appointed, that act or transaction is, in the absence of proof to the contrary, deemed to have been done or entered into or effected, as the case may be, after that time.
The Effects of winding up
1. General prohibition on the transfer of shares
  1. A disposition of any property of a company and a transfer of shares or alteration in the status of a shareholder made after the commencement of the winding up by the Court shall, unless the Court otherwise directs, be void.
  2. With effect from the commencement of the liquidation of a company unless the Court orders otherwise, a share in the company shall not be transferred
  3. an alteration shall not be made to the rights or liabilities of a shareholder of the company
  4. a shareholder shall not exercise a power under the constitution of the company or this Act except for the purposes of this Part
  5. the constitution of the company shall not be altered
2. Powers of directors suspended
  1. s. 140(2) - On the appointment of a liquidator, all the powers of the directors shall cease except so far as the liquidator or, with his consent, the company in general meeting may otherwise determine
  2. s. 154 - Effect of liquidation
    1. the liquidator has custody and control of the company’s assets
    2. the directors remain in office but cease to have powers, functions, or duties other than those required or permitted to be exercised by this Part
    3. commence or continue legal proceedings against the company or in relation to its property
      1. unless the liquidator agrees or the Court orders otherwise
    4. exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company
3. The directors and secretary must prepare and submit to the liquidator a report as to the affairs of the company. They must comply with any request from the liquidator for further information, for delivery of all company’s books and records and/or general assistance.
4. The company must cease to carry on business except to the extent that the liquidator believes that it will be necessary for the beneficial disposal of the assets.
5. s. 112 - The company however retains both the legal and beneficial ownership of property unless the liquidator asks for a vesting order from the Court
6. s. 105 - Proceedings against compan
  1. At any time after the presentation of a petition under s. 102 and before a winding up order is made, the company, a creditor or a contributory may, where any action or proceedings against the company is pending, apply to the Court to stay or restrain further proceedings in the action or proceedings, and the Court may stay or restrain the proceedings accordingly on such terms as it thinks appropriate.
  2. Where a winding up order has been made or a provisional liquidator has been appointed, no action or proceedings shall be proceeded with or commenced against the company except
    1. by leave of the Court
    2. on such terms as the Court thinks appropriate
7. s. 106(2) - Any attachment, sequestration, distress or execution put in force against the assets of a company after the commencement of the winding up by the Court shall be void.
8. s. 104(1)(c) - unless the liquidator agrees or the Court orders otherwise
  1. a person shall not commence or continue legal proceedings against the company or in relation to its property
  2. exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company
9. s.170 - Right of creditor to complete execution, distraint, or attachment
  1. a creditor is not entitled to retain the benefit of any execution process, distress, or attachment over or against the property of a company unless the execution process, distress, or attachment is completed before
    1. the passing of a resolution under s, 137(1)(a) appointing a liquidator of the company, or the date on which the creditor had notice of the calling of a meeting at which such a resolution was proposed, whichever occurs first
    2. the passing of a resolution under s, 137(4) appointing a liquidator of the company, or the date on which the creditor had notice of the calling of a meeting at which such a resolution was proposed, whichever occurs first
    3. the making of an application to the Court under s, 102 to appoint a liquidator of the company
    4. the passing of an ordinary resolution under s, 137(1)(a) that a company should be wound up, or the date on which the creditor had notice of the calling of the meeting at which such a resolution was proposed, whichever occurs first
  2. a person who, in good faith, purchases property of a company from an officer charged with an execution process acquires a good title as against the liquidator of the company
  3. a person who, in good faith, purchases property of a company on which distress has been levied acquires a good title as against the liquidator of the company
s. 136 - Refusal to supply essential service
1. the retail supply of electricity
2. the supply of water
3. telecommunications services
4. a supplier of an essential service shall not refuse to supply the service to a liquidator, or to a company in liquidation, by reason of the company’s default in paying charges due for the service in relation to a period before the commencement of the liquidation
5. make it a condition of the supply of the service to a liquidator, or to a company in liquidation, that payment be made of outstanding charges due for the service in relation to a period before the commencement of the liquidation
6. The charges incurred by a liquidator for the supply of an essential service are an expense incurred by the liquidator for the purposes of clause 1(1)(a) of the Fourth Schedule.
  1. the fees and expenses properly incurred by the Official Receiver or liquidator in carrying out the duties and exercising the powers of the Official Receiver or liquidator and the remuneration of the Official Receiver or liquidator including the cost of an audit under s.179

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WINDING UP (SS 100-181 & 304-337)

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	Created by Darshan Roopun over 10 years ago