CHAPTER 7WINDING - UP OF COMPANY

TYPES OF WINDING UP

Winding Up by the Court (Compulsory Liquidation)

Voluntary Winding Up

DIFFERENT BETWEEN COMPULSORY AND VOLUNTARY WINDING UP

Section 218 - the company is unable to pay its debts (the most common ground)

section 218(1) - the court is of the opinion that it is just and equitable that the company be wound up (which, as we have seen, may be useful in the event on unfairness or deadlock or if the substratum of the company has been destroyed).

if the company has, by special resolution, resolved that the company should be wound up by the court.

the company does not commence its business within a year from its incorporation, or suspends its business for a whole year.

when the period, if any, fixed for the duration of company by its articles, has expired

an event has taken place, on the occurrence of which the articles provide that the company is to be dissolved

if the company passes a special resolution that the company should be wound up voluntarily

In circumstances (a) and (b), an ordinary resolution passed in a general meeting for winding-up is sufficient.

Winding Up by the Court (Compulsory Liquidation) Voluntary Winding Up

PERSON WHO HAS LOCUS STAND IN COMPULSORY WINDING UP

Initiated on petition of a creditor or other person with locus standi:

• Locus standi requires manifestation of tangible interest: e.g., directors, contributories

MEMBERS VOLUNTARY WINDING UP AND CREDITORS VOLUNTARY

A voluntary winding-up may be :(a) a members' voluntary

winding-up(b) a creditors' voluntary

winding-up

Members' Voluntary Liquidation  This is where the shareholder of company decide to put

company into liquidation, and there are enough assets to pay all the debt of the company i.e. company is solvent.

   Definition

Liquidation of a solvent firm by adoption of a resolution for voluntary winding up of the business by its shareholders who also choose and appoint the liquidator. Since it is not an insolvency procedure, it requires a statutory declaration of solvency by the firm's board of directors (it is commonly a criminal offense to make this declaration without sound grounds). Although the involvement of a court is not required, a qualified liquidator must be appointed after the resolution. If it is discovered that the firm's assets will not be sufficient to cover its debts, the unsecured creditors can take charge of the liquidation process which is then termed a compulsory liquidation. Also called members' voluntary winding up, or just voluntary winding up.

WHAT IS THE PROCEDURE FOR MEMBER VOLUNTARY LIQUIDATION?

The procedure for a Members' Voluntary Liquidation is fairly straightforward. The directors of the company swear a Statutory Declaration of Solvency to the effect that the company is able to pay all its liabilities in full within 12 months. A meeting of the shareholders is convened in order to pass a winding-up resolution and appoint a Liquidator.

The duly appointed Liquidator then realises the company's assets, pays all creditors together with statutory interest and returns any surplus money to shareholders.

Creditors' Voluntary Liquidation

  Where the director of the company decide to place

the company into liquidation, because there are not enough assets to pay all the creditor i.e company is insolvent.

  Definition

Sale of the assets of an insolvent firm by its stockholders (shareholders), without a statutory declaration of solvency and without involving any court procedure. Although it is initiated when the shareholders adopt a resolution for voluntary winding up of the business, it is the unsecured creditors who have the right to appoint the liquidator. See also members' voluntary liquidation.

HOW DOES A CREDITORS’ VOLUNTARY LIQUIDATION WORK?

A Creditors’ Voluntary Liquidation is an insolvent Liquidation where the assets owned by the company are insufficient to pay creditors in full.

Again, the procedure is fairly straightforward. The directors instigate the process by convening meetings of shareholders and creditors. At the shareholders’ meeting a resolution is passed to wind-up the company and appoint a Liquidator. A creditors’ meeting follows immediately after the shareholders’ meeting where creditors may then, if they so wish, put forward an alternative nomination for Liquidator which is then subject to a vote.

7.2 DISCUSS THE ACCEPTANCE OF AUTHORITY & THE PRIMARY FUNCTIONS OF A LIQUIDATOR & EVIDENCE & PRIORITIES OF DEBTS

Powers of a Receiver where a Liquidator is Appointed

The main function of a Liquidator

Evidence & priorities of debts

POWERS OF A RECEIVER WHERE A LIQUIDATOR IS APPOINTED

Where a receiver has been appointed to a company and a liquidator is subsequently appointed, the receiver’s appointment is not affected per se. However, the liquidator can apply to the High Court to have the receivership determined or limited. In such circumstances, the Court may order that the receiver shall cease to act or shall from a certain time act only in respect of certain assets specified by the Court46. An examiner cannot be appointed to a company where a receiver has been appointed for a continuous period of at least three days.

THE MAIN FUNCTION OF THE LIQUIDATION

To take control of the assets of the estate, collect the assets wherever it may be found and to “liquidate” the assets to cash by selling the assets once authorized to do so. The proceeds are then distributed to creditors in terms of the provisions of the Insolvency Act, subsequent to the confirmation of a Liquidation and Distribution account by the Master of the High Court.

EVIDENCE & PRIORITIES OF DEBTS

Priority debts are paid first if a trustee disburses property in the course of the case. This can be very helpful when the priority debt can’t be discharged in your bankruptcy (which is usually the case). For example, liability for a recent income tax is both a priority debt and a debt that can’t be discharged in bankruptcy. Having your property pay off the tax debt—which you will have to pay anyway—is a lot better than having your property go to pay off debts that would otherwise be discharged n your bankruptcy.

WHO CAN BE APPOINTED AS OFFICIAL LIQUIDATOR

A member from the panel of the professional firms of chartered accountants, advocates, company secretaries, cost and work accountants which the central government may constitute.

Body corporate approved by central government

Whole-time or part-time officer appointed by the central government

THE MAIN DUTIES OF A LIQUIDATOR

Identify and taking control of  the Assets of the Company or Close Corporation and ensure that the assets are protected until they are sold;

Realise the cash value of those Assets by way of Private or Public Auction;

Recover monies wherever possible,  from debtors; Investigate the financial dealings of the Company

or Close Corporation to uncover any suspicious transactions or possible fraudulent behaviour.

Issue a Detailed Report to Creditors and Master of the High Court;

Draft a Liquidation & Distribution Account; Distribute dividend payments to Creditors;

POWER OF LIQUIDATOR IN WINDING UP

to institute and defend any suit, prosecution or other legal proceeding, civil or criminal, in

the name and on behalf of the company;

to carry on the business of the company;

to sell the immovable and movable property and actionable claims of the company by public auction or private contract;

to raise on the security of assets of the company any money requisite;

to do all such acts necessary for winding up the affairs of the company and distributing its assets.

to institute and defend any suit, prosecution or other legal proceeding, civil or criminal, in

the name and on behalf of the company;

to carry on the business of the company;

to sell the immovable and movable property and actionable claims of the company by public auction or private contract;

to raise on the security of assets of the company any money requisite.

In compulsory winding up of a company

In voluntary winding up of company

STATUS OF LIQUIDATION

RAMESHBHAI TANK v. OFFICIAL LIQUIDATOR OF VIJAY MILLS LTD. [(2008)

The applicants, who were the ex-employees of the company, were occupants of rooms situated on land owned by the company-in-liquidation. They filed the instant company application praying for setting aside the notices issued by the Official Liquidator calling upon them to hand over the premises belonging to the company-in-liquidation. But the applicants were not the tenants under any agreement and they were not in possession of the premises under a lease from the company. Also Court has power to order a former employee of a company in winding up, who still has in his possession the property of the company, to deliver possession thereof to the Official Liquidator. In view of this position, none of the applicants deserved any relief from the Court.

RANK THE ORDER OF FUNDS TO BE DISTRIBUTED IN WINDING UP Section 292. Priorities : (1) Subject to this Act, in a winding up there shall be paid in

priority to all other unsecured debts : (a) firstly, the costs and expenses of the winding up including

the taxed costs of a petitioner payable under section 220, the remuneration of the liquidator and the costs of any audit carried out pursuant to section 281;

(b) secondly, all wages or salary (whether or not earned wholly or in part by way of commission) including any amount payable by way of allowance or reimbursement under any contract of employment or award or agreement regulating conditions of employment, of any employee not exceeding one thousand five hundred ringgit or such other amount as may be prescribed from time to time whether for time or piecework in respect of services rendered by him to the company within a period of four months before the commencement of the winding up;

(c) thirdly, all amounts due in respect of worker's compensation under any written law relating to worker's compensation accrued before the commencement of the winding up;

(d) fourthly, all remuneration payable to any employee in respect of vacation leave, or in the case of his death to any other person in his right, accrued in respect of any period before the commencement of the winding up;

(e) fifthly, all amounts due in respect of contributions payable during the twelve months next before the commencement of the winding up by the company as the employer of any person under any written law relating to employees superannuation or provident funds or under any scheme of superannuation or retirement benefit which is an approved scheme under the federal law relating to income tax;

(f) sixthly, the amount of all federal tax assessed under any written law before the date of the commencement of the winding up or assessed at any time before the time fixed for the proving of debts has expired.

(2) The debts in each class specified in subsection (1) shall rank in the order therein specified but as between debts of the same class shall rank equally between themselves, and shall be paid in full, unless the property of the company is insufficient to meet them, in which case they shall abate in equal proportions between themselves.

(3) Where any payment has been made to any employee of the company on account of wages, salary or vacation leave out of money advanced by a person for that purpose, the person by whom the money was advanced shall, in a winding up, have a right of priority in respect of the money so advanced and paid, up to the amount by which the sum in respect of which the employee would have been entitled to priority in the winding up has been diminished by reason of the payment, and shall have the same right of priority in respect of that amount as the employee would have had if the payment had not been made.

(4) So far as the assets of the company available for payment of general creditors are insufficient to meet any preferential debts specified in paragraphs (1)(b), (d) and (e) and any amount payable in priority by virtue of subsection (3), those debts shall have priority over the claims of the holders of debentures under any floating charge created by the company, and shall be paid accordingly out of any property comprised in or subject to that charge.

(5) Where the company is under a contract of insurance (entered into before the commencement of the winding up) insured against liability to third parties, then if any such liability is incurred by the company (either before or after the commencement of the winding up) and an amount in respect of that liability is or has been received by the company or the liquidator from the insurer, the amount shall, after deducting any expenses of or incidental to getting in the amount, be paid by the liquidator to the third party in respect of whom the liability was incurred to the extent necessary to discharge that liability or any part of that liability remaining undischarged in priority to all payments in respect of the debts referred to in subsection (1).

(6) If the liability of the insurer to the company is less than the liability of the company to the third party nothing in subsection (5) shall limit the rights of the third party in respect of the balance.

(7) Subsections (5) and (6) shall have effect notwithstanding any agreement to the contrary entered into after the commencement of this Act.

(8) Where in any winding up assets have been recovered under an indemnity for costs of litigation given by certain creditors, or have been protected or preserved by the payment of moneys or the giving of indemnity by creditors, or where expenses in relation to which a creditor has indemnified a liquidator, have been recovered the Court may make such order as it deems just with respect to the distribution of those assets and the amount of those expenses so recovered with a view to giving those creditors an advantage over others in consideration of the risk run by them in so doing.

THAT ALL FROM US !!

THANKS FOR WATCHING & LISTENING