Corporations Law

Seminar Presentation

Statutory Provisions as to Winding Up : Procedure for Compulsory Winding Up by

Courts in Fiji – The Court Process and the role of the

Official Receiver and Liquidator in Winding Up

What is a Company ?“ an association of a number of people for

some common object or objects” as defined by Gower

A company as a corporate entity is created by way of incorporation and its corporate life ends upon being wound up

What is Winding Up ? It is the process whereby a company is liquidated.

Section 220 of the Companies Act of Fiji states : A company may be wound up by the court, if-

(a) the company has, by special resolution, resolved that the company be wound up by the court;

(b) default is made in delivering the statutory report to the registrar or in holding the statutory meeting;

(c) the company does not commence its business within a year from its incorporation or suspends its business for a whole year;

(d) the number of members is reduced, in the case of a private company, below 2, or, in the case of any other company, below 7;

(e) the company is unable to pay its debts;

(f) the court is of opinion that it is just and equitable that the company should be wound up;

(g) in the case of a company incorporated outside Fiji and carrying on business in Fiji, winding-up proceedings have been commenced in respect of it in the country or territory of its incorporation or in any other country or territory in which it has established a place of business.

These can further be narrowed down to 2 categories :

1. Voluntary Winding Up 2. Compulsory Winding Up

For the purpose of this presentation focus is put onto Compulsory Winding Up by Courts in Fiji and the role of the Official Receiver and Liquidator

The Companies Act of Fiji (Cap.237) deals with all matters pertaining to companies, from incorporation to dissolution.

The Procedure of Winding UpCreditor of the company who has debt owing

is to issue a demand notice.Upon receipt of demand notice, if company is

unable to pay the debt, it can opt through special resolution under section 221(7) of Companies Act to voluntarily wind up the company.

However if no such resolution is made then the creditor can proceed and file a petition in the High Court seeking that the company be compulsorily wound up

Litigation ProcedureWinding Up action is initiated at the High Court

level upon filing a Winding Up Petition.The petition specifies the nature of incorporation

of the company, the assets belonging to it, the debt owed to the creditor and the orders sought.

Petition is put forward to the Chief Registrar for Indorsement and assignment of a call date.

Affidavit Verifying Winding Up Petition has to be filed within 4days from the date of issuance of the petition by the court, failure to do which would result in the petition being ‘deemed abandoned’.

The petition has to be served upon the Company at its registered office.

Advertisement has to be made in the Local Newspaper and the Fiji Islands Government Gazette to inform the public and invite supporting creditors and those who oppose the winding up to show their intention in writing.

Matter is called before the Chief Registrar, documents are checked to see if in order, and timeline is provided to comply with rules if any applicable and direction given to file a Memorandum of Due Compliance, the matter is given a returnable date

Once all documents are in order, matter is listed before the Master of the High Court (or in his absence a Judge of the High Court of Fiji).

The petitioning creditor has to prove that the company falls within the definition of ‘Inability to Pay’ under section.221 of the Companies Act for a winding up order to be granted.

Upon Winding Up order being granted solicitors for the petitioning creditor then have to file and seal a court order and have the same served upon the company and the Official Receiver

What Happens when the Court Orders Winding Up?Notification is sent to the official receiver to

notify of the winding up petition being granted and the Official Receiver being appointed as provisional liquidator under section.235 of the Companies Act until a liquidator is appointed.

Section 240 of the Companies Act empowers the liquidator to take control of all property that the company owns and is entitled to.

Role of the Official Receiver and Liquidator :When the affairs of the Company is vested unto the

liquidator, the company does not seize to exist, instead it operates under the control of the liquidator.

If the directors of the company or their agents fail to cooperate with the liquidator during the liquidation process ,an order under section.241 of the Companies Act can be sought whereby any and/or all property belonging to the company and trustees on behalf of the company can be transferred under the Official Receivers name in his official capacity being the Liquidator ,so that the Liquidator can be put in a position to effectually wind up the company and recover all its properties.

Though the liquidator is granted discretion in the decision making relating to the company, its discretion is not absolute and upon application to court by an aggrieved person, the decisions of the liquidator may be conformed, reversed or modified.

{Refer : Section 243(4) Companies Act, Section 243(5) Companies Act.}

Any liquidator apart from the Official Receiver, upon receipt of payment on behalf of the company has to pay the same to the official receiver for credit of the Companies Liquidation Account, failure to do which would result in a fine at the rate of twenty percent of the amount per annum, a liquidator is also not allowed by virtue of law to pay into his own bank account monies received on behalf of the company in liquidation.

{Refer: Section 245(1) Companies Act, Section 245(2)

Companies Act.}

Every Liquidator apart from the Official Receiver is at all times supposed to keep a record of the accounts of the company and at prescribed intervals provide audited reports of the same. The official receiver oversees the conduct of liquidators to assure that duties bestowed upon the liquidator is performed faithfully, if the official receiver thinks fit, he may apply to the court to examine any liquidator or his representative under oath.

{ Refer: Section 246 Companies Act, Section 247(1)

Companies Act, Section 247(2) Companies Act.}

In its opinion if a liquidator has realized all properties of the company being wound up, and after distribution of final dividends and adjusting the rights of all contributories and upon presentation of a final report and providing accounts of the said company and complying with the requirements set by the court, the liquidator will be released from his role.

{ Refer: Section 248 Companies Act.}

The liquidator however if had made decisions and performed actions contrary to his duties, he would instead be charged.

{ Refer: Section 248(2) Companies Act.}

A release would discharge the liquidator of any liabilities arising from his actions in the role as liquidator

{ Refer: Section 248(3) Companies Act. }

At any given time, either before the making of a winding up order or after it is made, if a director, trustee or any other contributory is about to abscond Fiji to avoid examination in relation to the company or to dispose of any property or to conceal any property for evading payments, a departure prohibition order and an/or an order for arrest of the absconding person along with seizure of his/her moveable property, books and records can be sought.

{ Refer: Section 267 Companies Act. }

Upon all the affairs of the company being wound up, the court on application by liquidator, and granting release to the liquidator would make an order dissolving the company. A copy of the said order within fourteen days of its issuance has to be served on the Registrar of Companies for registration. Failure to do so would result in the liquidator being fined as per provisions of the Companies Act.

{ Refer: Section 270(1) Companies Act, Section 270 (2)

Companies Act. }

Example of a Winding Up CaseCopy of proceedings of Winding Up Case Proceedings

ProvidedSuva High Court Winding Up Action HBE 51/2009 In

The Matter of Vanua Designs and Associates Company Limited.

Ministry of Education as Creditor Petitioned the Court to wind up the Company for debt owed in the sum of $104,664-oo and solicitors costs $225-00

Matter was listed before the Chief Registrar on 5th August 2009.

Affidavit Verifying Petition was in place.Creditor was ordered to file Memorandum of Due

Compliance

Case listed Before Hon. Justice Pathik on 31st August 2009.

Winding Up order was granted and the court ordered the Official Receiver to be appointed Provisional Liquidator.

Order was made that the costs of the Petitioning creditor was to be paid out of the assets of the company.

ConclusionFrom the overall perspective it can be said

that the Companies Act of Fiji provides various situations in which a company can be wound up. Moreover the statute is quite clear on the roles and duties of the Official Receiver and the Liquidator in compulsory winding up situations and the penalties that exist for non-conformation with the legislation and through the effectiveness of the law a company cannot escape from paying its debts.

Bibliography

References were made to:Gower, L.C.B Principles of Modern Company Law, Sweet and Maxwell, London, 1999.

 Companies Act, Chapter 247, Laws of Fiji.

Winding Up Action HBE 51/2009