Assignment of winding up of companies

Ameer Ahmad, Roll No.9 On winding up of companies

WINDING UP OF COMPANIES

SYNOPSIS;-

INTRODUCTION

DISSOLUTION AND WINDING UP

PURPOSE OF WINDING UP

KINDES OF WINDING UP

DIFERENCE BETWEEN COMPULSORY WINDING UP AND VOLUNTARY WINDING UP

DIFERENCE BETWEEN CRDITORS VOLUNTARY WINDING UP AND MEMBERS VOLUNTARY WINDING UP

WHO CAN ASK FOR WINDING UP

SOME OTHER MODES OF WINDING UP

i. Winding Up On The Report Of Inspector (275)ii. Winding Up If The Scheme Of Amalgamation Or

Reconstruction Renders Unworkable (Section 285)iii. Winding Up On The Report Of Registrar Or Any

Other Concerned Person (Section 309) iv. Striking Off From The Register Or Companies

POWERS OF THE COURT RELATING TO WINDING UP

To be Submitted to Sir Mubasshar Tariq


CONCLUSION

WINDING UP OF COMPANIES

INTRODUCTION

The winding up is the process of dissolution of company by means of which its assets are collected realized and applied in payment of all types of its debts and the surplus, if any, is returned to shareholders etc, as per Memorandum and Articles of association, and as per provisions of Copmanies Ordinance 1984.

In the words of Professor Gower winding up of a company is the process whereby it life is ended and it’s property administered for the benefit of its creditors and member. An administrator called a liquidator is appointed and he takes control of the company, collects its assets pays its debts and finally distributes any surplus among the members in accordance with their rights.

Winding up of a company differs from the insolvency of an individual inasmuch a company cannot be made insolvent under the insolvency laws. Moreover, a perfectly solvent company may be wound up.

A company once incorporated cannot be put to an end except:

i. Through the machinery of winding up; orii. By removal from the Register as defunct company

DISSOLUTION AND WINDING UP

The company is not dissolved immediately at the commencement of winding up. Section 402 of the Companies



Ordinance 1984 provides that a company being would up shall continue to be a company for all purpose, mutatis mutandis, till its final dissolution in accordance with the provisions of the Ordinance. It means that its corporate status continue till the order of dissolution by court.

Case Law, as basis of this provsion

As it was held in Grannon Dunkerly and Co Vs. Asstt. Comm. Urban Tax (1992) that a company remains a tax payer until dissolved by order of the court.

In case Syndicate Bank v. Printersall P. Ltd. The contention was that there was no use winding up of the company because all the assets of the company had already been sold, the court nevertheless ordered winding up.

PURPOSE OF WINDING UP

The purpose of winding up is to secure the collection and distribution of the assets of the company of the category to which it belongs. The overall policy ad purpose laid down in this case is.

i. To examine accounts.ii. To liquify the assets of the company.iii. To account for these assets against taxes, wages, salaries,

debts, or equityholders as per their priority as per S.405 of Co. Ord.

iv. To ensure that creditors (if any) are treated equally.v. The property of the company is to be distributed to the

members, in accordance with their various rights.



vi. The principle of equal treatment of creditors is subject to qualifications laid down by the Act

vii. Disallow the sick companies to conduct the business.

ORIGIN AND LAW RELATING TO WINDING UP

Under the common law the registration of Companies under Joint Stock Companies Act 1844 led to the systematic development of winding up regime. Same year, Winding Up of the Affaris of Joint Stock Companies Act was passed. The Companies Act 1862 introduced the concept of voluntary winding up and winding up by the court.

The Company (Winding Up) Act 1890 provided the concept of official receiver, liquidator and his responsibilities. Companies Act. 1929 introduced distinction between the voluntary winding up by the creditors. Companies Act 1948 provided the complete process of winding up. In England, with effect from 29 December 1986, the winding up has been made part of Insolvency Act 1986 which repealed Section 501 to Section 650 of the Companies Act 1985.

Now, Ss. 297 to 439 of Companies Ordinance 1948 deal with winding up of companies.

KINDES OF WINDING UP

Winding up is the process by which the management of a company’s affairs is taken out of its directors hands it assets are realized by a liquidator and its debts are paid out of the proceeds of the realization and balance remaining is returned to its shareholders.

Section 297 of the Companies Ordinance 1984 provides follow modes of winding up:



I) Compulsory winding up under the order of court u/s 305II) Voluntary Winding up (Section 358)

a. By members u/s 305 (a), (b), 358 (a), 362

b. By creditors u/s 373 – 382

c. Declaration of insolvency by directors u/s 358 (a), 362

III) Winding up subject to supervision of the Court (Section 396)

DIFERENCE BETWEEN COMPULSORY WINDING UP AND VOLUNTARY WINDING UP

An essential difference between compulsory winding up by the court and voluntary winding up is that the former does not necessarily involve action taken by any organ of the company itself, whereas voluntary winding up involve action taken by any organ of the company

DIFERENCE BETWEEN CRDITORS VOLUNTARY WINDING UP AND MEMBERS VOLUNTARY WINDING UP

The essential difference between members and creditors winding up is that the former is possible only if the company is solvent in which event the company’s members appoint the liquidators whereas while in case the members fail to declare solvency as per Ordinance the creditors come in the field and take significant part in deciding who the liquidator shall be.



Chief Justice Cornelius J. in a case titled as Abdul Salam v. Muhammad Sharif described the difference between members voluntary winding up and creditors winding up in the following words.

“The precise effect of the provision of the Act is to divide all voluntary winding up……..into two categories, namely members voluntary winding up qualifies for the description members voluntary winding up but if this conditions is not satisfied the winding up will be classed as a creditors winding up”.

Following are the points of distinction between members voluntary winding up and creditors voluntary winding up:-

i) A members voluntary winding up is constituted by a declaration of solvency under Section 362 of the Companies Ordinance. But, where this declaration is not made the winding up is creditor’s winding up

ii) In members voluntary winding up the conduct of liquidation largely remains in the hands of members whereas in creditors voluntary winding up, the conduct of liquidation remains in the hands of creditors.

iii) Each kind of winding up is governed by special provisions, in addition to similar provsions, emumerated in the Ordinance.

In the case of winding up by members it will be deemed to have taken effect with effect from the date of resolution.

WHO CAN ASK FOR WINDING UP



As per sections 309, by filing a petition, following can ask for winding up;

a. Company b. Creditors (future or present)c. Contributoriesd. Registrar e. Commissionf. Person authorised by the Commission.

1. WINDING UP BY COURT (Section 305)

A company may be wound up by an order of the court. This is also called compulsory winding up. In such case a company shall be deemed to be wound up form the date of presentation of winding up petition. The cases in which a company may be wound up by the court are given in Section 305 of the Companies Ordinance 1984 and are enumerated hereunder:

A. BY SPECIAL RESOLUTIONIf the company has by special resolution resolved that it be wound up by the court. The court is not bound to order winding up simply because the company has so resolved. The powers is discretionary and may not be exercised where winding up would be opposed to the public or company’s interest.

B. DEFAULT IN HOLDING STATUTORY MEETING OR IN FILING STATUTORY MEETINGS.

C. FILUIRE IN HOLDING TWO CONSECTIVE ANNUAL GENERAL MEETINGS.



D. FAILURE TO COMMENCE BUSINESS OR SUSPENSION OF BUSINESS.

If a company does not commence its business within a year from its incorporation or has suspended business for a whole year, it may be ordered to be wound up. Here again the power is discretionary and will be exercised only when there is a fair indication that there is no intention to carry on business. If the suspension is satisfactorily accounted for and appears to be due to temporary causes the order may be refused.

In case Ali Wollen Mills Ltd. V. Industrial Development Bank Of Pakistan it was observed that discretion of the court to refuse to make an order for winding up of the company can be exercised where the company was undisputedly running in loss year after year and the mills of the company were closed since long. In such circumstances, the court was justified in coming to the conclusion that it was just and equitable that the company be wound up.

In case Eastern Telegraph Co. Ltd. Re., where a company’s subsidiaries were functioning winding up was not ordered though the company itself had ceased to function.

Where the business of a private company which was a family concern remained suspended for many years for want of quota of wires the company had no creditors the Registrar’s attempt to put it on winding up on account of suspension of business and perpetuity of losses did not succeed. A family company having no creditors, should not concern the public whether is running in profits or



losses. Where of the several business units of a company, the business of only one unit was closed with a proposal to dispose it off and to use the proceeds in the exploitation the other objects the court did not agree that it was a ground for winding up. The court said that even if the business in all the units of the company was suspended, it would still be open to the court to examine whether it would be possible for the company to resume its business

E. REDUCTION IN MEMBERSHIP

If the number of member is reduced in the case of a public company below seven and in the case of a private company below two the company may be ordered to be wound up.

F. INABILITY TO PAY ITS DEBTS / INSOLVENCY OF COMPANY

A company may be ordered to be wound up if it is unable to pay its debts as explained in Section 306 of the Companies Ordinance 1984. A company shall be deemed to be unable to pay its debts in the following three case: I. Statutory Notice

If a creditor to whom the company owes a sum exceeding one percent of it’s paid up capital or 50,000/- rupees. Whichever is less, than due, has served on the company, by causing the same to be delivered by registered post or otherwise at its registered office a demand under his hand requiring the company to pay the sum so due and the



company has for 30 days thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor, or

II. Decreed DebtA company shall be deemed to be unable to pay its debts if execution or other process issued on a decree or order or any Court in favour of a creditor of the company is returned unsatisfied in whole or in part.

III. Commercial InsolvencyIf it is proved to the satisfaction of the court the company I unable to pay its debt. In determining this court shall take into account the contingent and prospective liabilities of the company. The expression “commercial insolvency” was explained by Sir James in European Life Assurance Society Re. not in any technical sense but plainly and commercially insolvent that is to say that its assets are such and existing liabilities are such, as to make it reasonably certain – to make the court feel satisfied – that the existing and probable assets would be insufficient to meet the existing liabilities.

G. IF THE COMPANY IS:I. Conceived or brought forth or is or has been carrying

unlawful or fraudulent activities.In case Fida Ali Yousaf Ali v. Grazalt Refineries Ltd., it was observed that the court may order company to be wound up, if its substratum is gone and particularly if majority of shareholders is deceptive. Court not bound to accede to wishes of shareholders or creditors one-way or other.

II. Involved in commiting fraud



III. Carrying on business not authorized by the memorandum

IV. Conducting its business in a manner oppressive to any of its members or persons concerned with the formation or promotion of the company or promotion of the or the minority shareholders.

V. Run and managed by persons who fail to maintain proper and true accounts or commit fraud, misfeasance or malfeasance in relation to the company; or

VI. Managed by persons who refuse to act according to the requirements of the memorandum or articles or the provisions of Companies or fail to carry out directions or decisions of the Court or the registrar or the Commission (SECP) given in exercise of powers under the Ordinance.

VII. If being a listed company, it ceases to be such company.

VIII. If the court is of the opinion that it is just and equitable to wind it up

(Details not given because this topic was given for making a separate assignment)

2. VOLUNTARY WINDING UP (Section 358)Voluntary winding up is of two kinds. If declaration of solvency is

made in accordance with Section 362 of the Companies Ordinance. It will be a member’s voluntary winding up. The declaration has to



be made by majority of the directors at a meeting of the board and verified by an affidavit. They have to declare that they have made a full inquiry into the affairs of the company and have formed the opinion that the company has no debts rot ha tit will be able to pay its debts if full within a certain period.

3. WINDING UP SUBJCT TO SUPERVISION OF THE COURT (Section 396)

After a company has passed a resolution for voluntary winding up, the court may make an order that the voluntary winding up shall continue but subject to supervision of the court. The extent of supervision is to be determined by the court. The court may also appoint an additional liquidator or liquidators and may according exigencies remove any liquidator and fill and fill any vacancy occasioned by the removal or by death or resignation.

The most important aspect of the order is that the court gets the same powers as it has in the case of a winding up by the court. While the winding up remains basically a voluntary winding up, the advantage of a compulsory winding up. A supervision order is an amalgam of both voluntary winding up and a winding up by court an dit is made on such terms and conditions as the court thinks just.

However, the company may still subsequently be ordered to be wound u by the court. In such a case the court may declare that the liquidator who was then functioning will continue as an official liquidator.

SOME OTHER MODES OF WINDING UP



1. WINDING UP ON THE REPORT OF INSPECTOR (275)

Section 275 of the Companies Ordinance 1984 provides that if it appears to the Commission (SECP) from any report made under Section 269 by the Inspector that it is expedient to wind up a company, then the Commission (SECP) unless the company or other body corporate is already being wound up by the Court cause to be presented to the court by the registrar or any person authorized by the Commission (SECP) in this behalf.

a. A petition for the winding up of the company or body corporate on the ground that it is just and equitable that it should be wound up.

b. An application for an order under Section 290 (appropriate order under parental jurisdiction of the court against oppression and mismanagement): or

c. Both a petition and an application as aforesaid.

2. WINDING UP IF THE SCHEME OF AMALGAMATION OR RECONSTRUCTION RENDERS UNWORKABLE (Section 285)

If the scheme of arrangement amalgamation reconstruction or compromise is not workable, the court may order winding up. This winding up will be one of the winding up mentioned under Section 305 of the Companies Ordinance 1984.

3. WINDING UP ON THE REPORT OF REGISTRAR OR ANY OTHER CONCERNED PERSON (Section 309)

Section 309 of the Companies Ordinance 1984 provides that an application for winding up of a company shall be by petition presented subject to the provisions of this section either by the company or by any creditor or creditors (including any contingent or prospective creditor or creditors) or by any contributory or contributories or by all any of the aforesaid parties, together or



separately or by the registrar or by the SECP or by a person authorized by the Authority in that behalf.

4. STRIKING OFF FROM THE REGISTER OR COMPANIES

In practice, the largest number of companies are dissolved by the simple administrative procedure of striking off the register. Section 439 of the Companies Ordinance 1984 empowers the registrar to do this after advertisement if his inquiries show or suggest that the company has ceased to carry on business lawfully or according to its objects. This is a very useful sanction in the case of company, which has failed to file accounts or annual returns. It is quite common for the registrar to be invited by the company itself to exercise these powers and in this way the expense of a formal liquidation is avoided.

POWERS OF THE COURT RELATING TO WINDING UPCourt are generally very slow to entertain an application of

winding up. Section 314 of the Companies Ordinance 1984 provides that after hearing a winding up petition, the court may dismiss it with or without costs; or adjourn the hearing or make an order for winding up or any other order it thinks fit. The court can also issue a conditional order of winding up.

Further under Section 314(2) when a petition is presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding up, if it is of the opinion that some other remedy is available to the petitioner and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that remedy.



Section 314(4) provides that if on haring a petition, the court is of the opinion that although the facts would justify the making of a winding up order the making of such order would unfairly prejudice the members or the creditors the Court may instead of making an order for winding up the company make such order as it thinks in the circumstances for regulating the conduct of the affairs of the company and bringing to an end the mattes complained of, including an order or a change in the management of the company.

Section 314(5) further provides that an order of winding up shall be intimated forthwith to the Registrar and the Liquidators appointed by the Court.

Section 316 of the Companies Ordinance 1984 provides that when a winding up order has been made a or a provisional manager has been appointed no suit or other legal proceedings shall be proceeded with or commenced against the company except by leave of the court and subject to such terms as the court may impose.

Section 316(2) provides that the court winding up the company shall have the jurisdiction to entertain or dispose of any suit or proceedings by or against the company.

Section 319 states that the court may at any time not later than three years after an order for winding up on the application of any creditor or contributory or of the registrar of the authority or a person authorized by it, and on proof to the satisfaction of the court that tall proceedings in relation to the winding up ought to be stayed, withdrawn cancelled or revoked make an order accordingly, on such terms and conditions as the court thinks fit.



Section 318 of the Companies Ordinance 1984 provides that effect an order of winding up will be that it shall operate in favour of all the creditors and of all the contributories of the company as if made on the joint petition of a creditor and of a contributory.

CONCLUSION

Companies are given life through the ensouling of incorporation and are vanished through the process of winding up or liquidation which ends in dissolution of company. The winding up is a process entailing differing actions to liquify the assets of the company and accounting for the assets to the persons entilted for them as per their order of priority set in the law. During this process directors are sidelined and liquidater/official reciever takes the control into his hands, and acting in accordance with law give end to the artificial legal personality.


Assignment of winding up of companies

Law

Transcript of Assignment of winding up of companies