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Winding up by Winding up by the courtthe court

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IntroductionIntroduction Winding-up or liquidationWinding-up or liquidation Ending the life of a companyEnding the life of a company Assets are sold offAssets are sold off Debts are paidDebts are paid Surplus funds distributed amongst Surplus funds distributed amongst

shareholders or in accordance with the shareholders or in accordance with the Memorandum and articlesMemorandum and articles

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During winding up process – During winding up process – company continues to existcompany continues to exist

Upon completion of winding up – Upon completion of winding up – company ceases to exist by formal company ceases to exist by formal act of dissolutionact of dissolution

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By order of Court – compulsory By order of Court – compulsory winding upwinding up

By special resolution of company – By special resolution of company – voluntary winding upvoluntary winding up

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Commencing a Winding UpCommencing a Winding Up

By court order – petition to courtBy court order – petition to court

members passed a special resolution members passed a special resolution agreeing to be wound upagreeing to be wound up

company does not commence business company does not commence business within a year from date of within a year from date of incorporation or suspends business incorporation or suspends business for a whole yearfor a whole year

company has no membercompany has no member

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company is unable to pay its debts – a company is unable to pay its debts – a company is deemed to be unable to pay its company is deemed to be unable to pay its debts if it owes $10,000 or more, and a debts if it owes $10,000 or more, and a statutory demand has been served on the statutory demand has been served on the companycompany

a predetermined event for triggering off a predetermined event for triggering off winding up as provided in the M.A. or A.A. winding up as provided in the M.A. or A.A. has occurred has occurred

the court is of the opinion that it is just and the court is of the opinion that it is just and equitable that the company should be wound equitable that the company should be wound upup

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The “just and equitable” The “just and equitable” groundground

Where the main object of the company Where the main object of the company has failedhas failed

Where the company was formed to Where the company was formed to carry out a fraud or to carry on an carry out a fraud or to carry on an illegal businessillegal business

Where the members have formed a Where the members have formed a company on the basis of relationship company on the basis of relationship involving mutual trust, understanding, involving mutual trust, understanding, and confidence which no longer existsand confidence which no longer exists

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Application by Company Application by Company Registrar to wind up a Registrar to wind up a

companycompany Company carrying on for an unlawful Company carrying on for an unlawful

purposepurpose

Private company has no director or no Private company has no director or no secretary for more than 6 monthssecretary for more than 6 months

Non-private company has less than 2 Non-private company has less than 2 directors or no secretary for more directors or no secretary for more than 6 monthsthan 6 months

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Company has failed to pay annual Company has failed to pay annual registration feeregistration fee

Company has been persistently in Company has been persistently in breach of its obligation under the breach of its obligation under the Companies OrdinanceCompanies Ordinance

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Voluntary Winding UpVoluntary Winding Up

Circumstances where a company Circumstances where a company may be wound up voluntarily - may be wound up voluntarily - Period fixed for its existence expiresPeriod fixed for its existence expires Predetermined event triggering off Predetermined event triggering off

winding up occurswinding up occurs Special resolution of company to be Special resolution of company to be

wound upwound up

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Special resolution of company that it Special resolution of company that it cannot by reason of its liabilities cannot by reason of its liabilities continuecontinue

Majority of directors deliver to the Majority of directors deliver to the Registrar a winding-up statement Registrar a winding-up statement

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Summary procedure for Summary procedure for winding up by the courtwinding up by the court

If the Court is satisfied, or if Official If the Court is satisfied, or if Official Receiver or provisional liquidator reports to Receiver or provisional liquidator reports to the court, that the court, that The property of the company is not likely to The property of the company is not likely to

exceed in value $200,000 the court may make exceed in value $200,000 the court may make an order the company be wound up in a an order the company be wound up in a summary manner.summary manner.

No need for setting up a committee of No need for setting up a committee of inspection and liquidator has all powers without inspection and liquidator has all powers without the need for sanction by that committee.the need for sanction by that committee.

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Consequences of a winding Consequences of a winding up orderup order

No action or proceedings can be No action or proceedings can be continued or commenced against the continued or commenced against the company except by leave of the company except by leave of the courtcourt

The liquidator will take all the The liquidator will take all the property and things in action to property and things in action to which the company appears to be which the company appears to be entitled into his custody or under his entitled into his custody or under his controlcontrol

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Appointment of LiquidatorAppointment of Liquidator

Involuntary winding up – appointed by Involuntary winding up – appointed by courtcourt

Voluntary winding up – by shareholders Voluntary winding up – by shareholders if directors are able to declare that the if directors are able to declare that the company is solventcompany is solvent

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Powers and duties of the Powers and duties of the liquidatorliquidator

Section 199 of the Companies Section 199 of the Companies OrdinanceOrdinance Assumes powers of directorsAssumes powers of directors

Selling off assetsSelling off assets

Debts paid to the extent possibleDebts paid to the extent possible

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If asset insufficient to pay debts, If asset insufficient to pay debts, members to contribute if shares not members to contribute if shares not fully paidfully paid

Surplus funds distributed amongst the Surplus funds distributed amongst the shareholdersshareholders

Subject to duties laid down in the Subject to duties laid down in the Ordinance and Winding Up RulesOrdinance and Winding Up Rules

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Means to increase amount Means to increase amount of money available to pay of money available to pay

creditors or to return creditors or to return capital to members:capital to members:

Fraudulent tradingFraudulent trading

Breach of dutyBreach of duty

Unfair preferenceUnfair preference

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Distribution of assetsDistribution of assets

All debts must be considered by the All debts must be considered by the liquidatorliquidator

Creditors must prove their debt or Creditors must prove their debt or claim and establish any claim to claim and establish any claim to priority.priority.

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Secured Creditor:Secured Creditor: Obtain payment from proceeds of Obtain payment from proceeds of

selling the securityselling the security

Balance of sale proceeds over debt Balance of sale proceeds over debt must be paid to liquidatormust be paid to liquidator

Sale proceed insufficient – balance as Sale proceed insufficient – balance as an unsecured debtan unsecured debt

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Unsecured Creditors – Unsecured Creditors – Paid from remaining assets after Paid from remaining assets after

secured creditors are paidsecured creditors are paid Except – priority debts:Except – priority debts:

Costs of the winding upCosts of the winding up Preferential debtsPreferential debts

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Preferential Debts – Preferential Debts – Salaries owing to employees during 4 Salaries owing to employees during 4

months before winding up and other months before winding up and other paymentspayments

Tax and rates due to the Government Tax and rates due to the Government during the 12 months before winding upduring the 12 months before winding up

Certain contracts of insuranceCertain contracts of insurance