Creditors' Voluntary Winding-Up

Voluntary Winding-up 

Creditors’ winding-up

 

When a company passes a resolution for its dissolution and consequential winding-up, it shall deliver a notice of such resolution to the Registrar of Companies for the purpose of registration within 14 days following the date of dissolution of the company. Any director of the company shall, if he has reasonable grounds for the opinion that the company will be able to pay its debts in full within a specified period, make a declaration to that effect. 

 

In default of such declaration, the voluntary winding-up shall be referred to as creditors’ voluntary winding-up. Therefore, the company is in a state of insolvency.  

Where the board of directors of a company pass a resolution for the dissolution and consequential winding-up a notice thereof shall be delivered within fourteen days following the dissolution to the Registrar of Companies for registration. Failure to deliver notice of resolution attracts the imposition of a penalty on the part of the liquidator or officer with an additional penalty for every day that such person(s) act(s) in default of the law. At the stage of dissolution, the company shall cease to carry on its business. However, any or all acts and transactions necessary for the winding-up shall take place in order to conclude the company’s business transactions. As a result, any transfer of shares or alteration in the status of the company’s members shall be deemed void after the date of dissolution. 

 

The date of dissolution of a company is generally deemed to be the date on which the resolution for the dissolution and the winding-up was passed. However, this may be subject to exceptions such as when it is the Court which orders that a voluntary winding-up takes place.

The directors of the company shall summon a creditors’ meeting within fourteen days from the general meeting at which the resolution was passed. A notice of the creditors’ meeting shall be sent to all creditors by post at least seven days prior to the said meeting. Furthermore, the directors shall, prior to the creditors’ meeting, cause a full statement of the position of the company’s affairs, list all the creditors of the company and list also the estimated amount of their respective claims. A notice of the creditors’ meeting shall be advertised by the directors of the company once at least in one local daily newspaper. One of the directors shall be appointed to preside at the creditors’ meeting.   

From a legal practical point of view, upon the appointment of the liquidator all the powers of the directors and company secretary shall cease as the former takes over. In every winding-up, there may be more than one person acting as a liquidator. In this scenario the law contemplates that, unless otherwise determined during the appointment of the liquidators, they shall act jointly.

 

The liquidator may be nominated either by the creditors or by the company. Where the creditors and the company nominate a different person to act as the liquidator, then the person nominated by the creditors shall be the liquidator appointed. On the other hand, where the creditors fail to nominate a person to act as the liquidator, then the person nominated by the company will be the liquidator. The legislator also contemplates the situation whereby neither the creditors nor the company nominate a person to act as the liquidator. As a result, the law empowers the Court to appoint a person to act as the liquidator following the filing of an application by any director of the company to that effect. The court application shall be filed within fourteen days from the date of the creditors’ meeting. 

 

As a general rule, the liquidator may be removed by means of a resolution of the creditors. This is however limited to instances where it is the creditors who nominate and appoint the person acting as the liquidator. 

 

The vacancy of the office of a liquidator may occur either through (i) death; or (ii) resignation; or (iii) removal. Where the appointment was not originally made by the court then a new liquidator shall be ordinarily appointed either by the creditors or by the company. In every case wherein a vacancy arises there is the duty by any of the directors to notify the Registrar of Companies. On the other hand, where the appointment was made by the Court, then an application shall be filed for the appointment of another liquidator. The liquidator’s remuneration shall be fixed either by the liquidation committee, if any, or by the creditors. 

 

A liquidation committee may be appointed by the creditors either at the creditors’ meeting or any other meeting. It shall not consist of more than five representatives from the body of creditors. This indicates that the law does not differentiate between companies in relation to their size.

 

If the process of the winding-up exceeds twelve months, then the liquidator is obliged to summon (i) a general meeting of the company and (ii) a meeting of the creditors. Both meetings shall be held at the very end of the first twelve months from the date of dissolution. During these meetings the liquidator shall lay an account of both his acts and dealings simultaneously with the conduct of the winding-up during the preceding twelve months. The conduct of the winding-up essentially encompasses a summary of receipts and expenditure. This evaluation shall be presented to the company and the creditors prior to the date of the meeting. 

 

Upon completion of the entire process, the liquidator shall conclusively (i) make an account of the winding-up to demonstrate how the procedure of the winding-up has been conducted and how the property of the company has been disposed of; (ii) draw up a scheme of distribution indicating the amount due of the company and (iii) cause the account of the winding-up to be audited by one or more auditors generally appointed by the creditors. 

 

Subsequently the liquidator shall summon the final meetings namely (i) the general meeting of the company and (ii) the creditors’ meeting. During both meetings the liquidator shall explain all the process of the winding-up, the scheme of distribution as well as the auditors’ report.

 

Ultimately the liquidator shall notify the Registrar of Companies by sending (i) a copy of the account; (ii) a copy of the scheme of distribution and (iii) a copy of the auditors’ report within a time-limit of seven days from the date of the meetings or, where not held on the same day, from the date of the last meeting, who shall also make a return of the holding of the meetings. In default, the liquidator shall be liable to the imposition of a penalty and for every day in which he fails to perform his duties will subject him to a further penalty.  

 

All the liabilities of the company shall be satisfied through the distribution of the company’s property. Essentially, the distribution shall be in adherence to the pari passu rule. Hence the distribution is carried out fairly and without partiality amongst the body of creditors. 

 

Initially the costs, fees and other expenses relating to the winding-up as well as the liquidator’s remuneration shall be payable out of the assets of the company in priority to other claims. This general rule will only be omitted where the Court orders otherwise. 

Upon receipt of (i) the account; (ii) the scheme of distribution and (iii) the audited report, the Registrar of Companies shall proceed with the striking-off of the company’s name from the register after the registration of the said documents is complete. 

 

Exceptionally, the law empowers the liquidator(s) or any party interested to apply, by means of an application filed at the Court, to defer the date on which the company’s name is to be struck off. But this is subject to the discretion of the Court to determine in each case whose interests shall prevail and to what degree.