Corporate Governance 1What is Liquidation
“The selling up , paying off and closing down” of the Company
Winding up or liquidation is a procedure whereby the life of the
company is brought to an end or dissolved and its property
distributed to its creditors and if any remains to the members .
The terms winding up or liquidation are used interchangeably.
There are two general modes whereby a company may be wound
up:
by the court (compulsory or subject to the supervision of the
court);
voluntarily (members or creditors)
A liquidator may be appointed under either mode of
liquidation.
The liquidator takes control of the company, collects the assets,
pays debts and distributes any surplus among the members of the
company in accordance with their rights.
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members; and
Voluntary Liquidation
Based upon section 272 of the Act a company may be voluntarily
wound up
when the period, if any fixed for the duration of the company
expires;
upon the occurrence of an event which the articles of the company
requiring the passing of a resolution in a general meeting to wind
up the company;
the company passes a special resolution to wind up
voluntarily;
the company passes an extra ordinary resolution that the company
cannot by reason of its liabilities continue its business.
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Procedure for Members’ Voluntary Liquidation
The company must give 14 days notice of the meeting to pass the
special or extra ordinary resolution. (s. 129 (1) (b) Companies Act
2004) Or any other period of notice specified in the Company’s
articles.
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Procedure for Members’ Voluntary Liquidation
The directors of the company must make a declaration of
solvency.
The declaration will state that
they have made a full inquiry into the affairs of the company;
and
they have formed the opinion that the company will be able to pay
its debts within a period not exceeding 12 months from the
commencement of the winding up.
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This declaration
has no effect unless
it is made within 5 weeks immediately preceding the resolution to
wind up,
it is delivered to Registrar for registration within the same
period,
it embodies a statement of the company’s assets and liabilities
before the declaration.
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Procedure for Members’ Voluntary Liquidation
Any Director who makes a declaration without having reasonable
grounds for the opinion that the company will be able to pay its
debts in full within the period specified in the declaration is
liable to imprisonment with or without hard labour for a period not
exceeding 6 months or to fine not exceeding $50,000 or to both such
imprisonment and fine
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Procedure for Members’ Voluntary Liquidation
The voluntary liquidation is deemed to commence at the date of the
passing of the resolution to voluntarily wind up the company. (s.
274 Companies Act 2004)
From the date of commencement the company shall cease to carry on
business except for winding up.
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The company must within 14 days of the passing of the
resolution
publish notice in the gazette; and
notify the Registrar.
Failure to do this will result in the company and every officer
being liable to a fine not exceeding $100,000.
Procedure for Members’ Voluntary Liquidation
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The liquidator shall within 21 days of his appointment
publish his appointment in the gazette and one daily newspaper;
and
notify the Registrar
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Proof of debts received
Creditors paid
Capital may be returned to contributories after all debts are
paid
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Procedure for Members’ Voluntary Liquidation
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Procedure for Members’ Voluntary Liquidation
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Procedure for Members’ Voluntary Liquidation
As soon as the affairs of the company are fully wound up The final
meeting is announced with at least 1 months notice in the gazette
and a daily newspaper.
Final meeting held and liquidator presents his accounts. These
accounts will set out how the winding up was conducted and how the
property of the company was disposed of.
A return as to the holding of the meeting and a copy of the
liquidator’s accounts are filed with the Registrar within a week of
the meeting
The company will be dissolved 3 months after this return has been
registered by the Registrar
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Conversion to Creditors Voluntary liquidation
A members Voluntary may be converted to Creditors Voluntary winding
up , but this is not automatically so . It cam occur
if the Liquidator is of the opinion that the company will not be
able to pay its debts in full as the directors have stated in the
declaration .
At this point he is empowered to call at once a meeting of the
creditors, laying before them a statement of the companies assets
and liabilities. Section 282.
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Conversion to Creditors’
If the liquidator fails to call the final meeting he is liable to
fine not exceeding $50,000
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Conversion to Creditors’
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Procedure if conversion Sec 293 and 294
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Procedure if Conversion
At both meetings he shall lay before the meeting an account of his
acts and dealings and of the conduct of the winding up during the
preceding year ( similar to voluntary winding up)
If he defaults fine not exceeding $50,000
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Procedure if Conversion
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THE COMMITTEE OF INSPECTION
If converted to Creditors Voluntary, the Creditors may appoint a
committee of inspection to act with the liquidator .This committee
should be made of not more than five persons appointed by the
creditors. The company in general meeting may also appoint another
5 persons e
The creditors may however resolve than any or all of persons named
by the Company ought not to be members of the committee
Creditors may also resolve that persons named by Company are not
qualified to act on the Committee however the court may direct
otherwise
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Committee of Inspection
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NEW LIQUIDATOR
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NEW LIQUIDATOR
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Court remedies
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COURT REMEDIES
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COURT REMEDIES
Creditor may also apply to have voluntary liquidation continue
subject to the supervision of the court
At this juncture the court may appoint an additional
liquidator
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COURT REMEDIES
Or intervention from the court in the same manner as if it was
being wound up voluntarily
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COURT REMEDIES
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COURT REMEDIES
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COURT REMEDIES
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COURT REMEDIES
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Supplemental Rights/remedies
If winding up does not conclude within a year after its
commencement the liquidator must send to the Registrar at intervals
a statement with respect to the proceedings and the position of the
liquidation. The creditor is entitled to inspect the statement or
receive a copy on payment of relevant fees.
Penalty of $500 each day if liquidator defaults
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