Ch12 Winding Up - Sheet1

Question 1

Modes of winding up?

[Section 293]

Answer 1

The winding up of a company may be either:

a) by the Court; or
b) voluntary; or
c) subject to the supervision of the Court.

The provisions of the Companies Act, 2017 relating to winding up shall be applicable to all modes of winding up unless expressly provided otherwise.

Question 2

Circumstances in which a company may be wound up by Court

[Section 301]

Answer 2

A company may be wound up by the Court:

a) if the company has, by special resolution, resolved that the company be wound up by the Court; or
b) if default is made in delivering the statutory report to the registrar or in holding the statutory meeting; or
c) if default is made in holding any two consecutive annual general meetings; or
d) if the company has made a default in filing with the registrar its financial statements or annual returns for immediately preceding two consecutive financial years; or
e) if the number of members is reduced, in the case of public company, below three and in the case of a private company below two; or
f) if the company is unable to pay its debts; or

g) if the company is:
i. conceived or brought forth for, or is or has been carrying on, unlawful or fraudulent activities; or
ii. carrying on business prohibited by any law for the time being in force in Pakistan; or restricted by any law, rules or regulations for the time being in force in Pakistan; or
iii. conducting its business in a manner oppressive to the minority members (members together holding not less than 10% of equity share capital) or persons concerned with the formation or promotion of the company; or
iv. 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
v. managed by persons who refuse to act according to the requirements of the memorandum or articles or the provisions of the Act or failed to carry out the directions or decisions of the Commission or the registrar given in the exercise of powers under the Act; or

h) if, being a listed company, it ceases to be such company; or
i) if the Court is of opinion that it is just and equitable that the company should be wound up; or
j) if a company ceases to have a member; or
k) if the sole business of the company is the licensed activity and it ceases to operate consequent upon revocation of a licence granted by the Commission or any other licencing authority; or
l) if a licence granted for association not for profit to a company has been revoked or such a company has failed to comply with any of the provisions of section 43 or where a company licenced under section 42 is being wound up voluntarily and its liquidator has failed to complete the winding up proceedings within a period of one year from the date of commencement of its winding up; or
m) if a listed company suspends its business for a whole year.

Question 3

What is deemed to be unlawful activity?

Answer 3

The promotion or the carrying on of any scheme or business, howsoever described, shall be deemed to be an unlawful activity:

a) whereby, in return for a deposit or contribution, whether periodically or otherwise, of a sum of money in cash or by means of coupons, certificates, tickets or other documents, payment, at future date or dates of money or grant of property, right or benefit, directly or indirectly, and whether with or without any other right or benefit, determined by chance or lottery or any other like manner, is assured or promised; or

b) raising un-authorised deposits from the general public, indulging in referral marketing, multi-level marketing (MLM), Pyramid and Ponzi Schemes, locally or internationally, directly or indirectly; or

c) any other business activity notified by the Commission to be against public policy or a moral hazard.

Question 4

Application for winding up:
Who may present the petition

[Section 304]

Answer 4

An application to the Court for the winding up of a company shall be by petition presented, either:
a) by the company; or
b) by any creditor or creditors (including any contingent or prospective creditor or creditors); or
c) by any contributory or contributories; or
d) by all or any of the aforesaid parties, together or separately; or
e) by the registrar; or
f) by the Commission; or
g) by a person authorised by the Commission in that behalf.
The term “contributory” means a person liable to contribute towards the assets of the company on the event of its being wound up.

Question 5

Application for winding up:
Condition for petition by the company

[Section 304]

Answer 5

The Court shall not give a hearing to a petition for winding up a company by the company until the company has furnished with its petition, in the prescribed manner, the particulars of its assets and liabilities and business operations and the suits or proceedings pending against it.

Question 6

Application for winding up:
Condition for petition by the creditor(s)

[Section 304]

Answer 6

The Court shall not give a hearing to a petition for winding up a company by a contingent or prospective creditor until such security for costs has been given as the Court thinks reasonable and until a prima facie case for winding up has been established to the satisfaction of the Court.

Question 7

Application for winding up:
Condition for petition by the contributory

[Section 304]

Answer 7

A contributory shall not be entitled to present a petition for winding up a company unless:

a) either the number of members is reduced, in the case of a private company, below two, or, in the case of public company, below three; and

b) the shares in respect of which he is a contributory or some of them either were originally allotted to him or have been held by him, and registered in his name, for at least 180 days during the 18 months before the commencement of the winding up, or have or devolved on him through the death of a former holder.

Question 8

Application for winding up:
Condition for petition by the registrar

[Section 304]

Answer 8

The registrar shall not be entitled to present a petition for the winding up of a company unless the previous sanction of the Commission has been obtained to the presentation of the petition and no such sanction shall be given unless the company has first been afforded an opportunity of making a representation and of being heard

Question 9

Application for winding up:
Condition for petition by the Commission or authorised persion

[Section 304]

Answer 9

The Commission or a person authorised by the Commission in that behalf shall not be entitled to present a petition for the winding up of a company unless an investigation into the affairs of the company has revealed that:

a) it was formed for any fraudulent or unlawful purpose; or
b) it is carrying on a business not authorised by its memorandum; or
c) its business is being conducted in a manner oppressive to any of its members or persons concerned in the formation of the company; or
d) that its management has been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members.

Such petition shall not be presented or authorised to be presented by the Commission unless the company has been afforded an opportunity of making a representation and of being heard.

However, if sole business of the company is the licensed activity and that licence is revoked, no investigation into the affairs of the company shall be required to present the petition for winding up of the company.

Question 10

Commencement of winding up by Court

[Section 306]

Answer 10

A winding up of a company by the Court shall be deemed to commence at the time of the presentation of the petition for the winding up.

Question 11

Voluntary winding up

[Section 347]

Answer 11

A company may be wound up voluntarily when it passes a resolution for voluntary winding up in any of the following ways:

a) if the company in general meeting passes a resolution requiring the company to be wound up voluntarily as a result of the expiry of the period for its duration, if any, fixed by its articles or on the occurrence of any event in respect of which the articles provide that the company should be dissolved; or

b) if the company passes a special resolution that the company be wound up voluntarily.

Question 12

Winding up subject to supervision of the Court

[Section 381]

Answer 12

When a company has passed a resolution for voluntary winding up, the Court may of its own motion or on the application of any person entitled to apply to the Court for winding up a company, make an order that the voluntary winding up shall continue, but subject to such supervision of the Court, and with such liberty for creditors, contributories or others to apply to the Court, and generally on such terms and conditions, as the Court thinks just.

Question 13

Effect of petition for winding up subject to supervision

[Section 382]

Answer 13

A petition for the continuance of a voluntary winding up subject to the supervision of the Court shall, for the purpose of giving jurisdiction to the Court over suits and another legal proceeding, be deemed to be a petition for winding up by the Court.

Question 14

Petition to convert other modes to winding up by Court

[Section 305]

Answer 14

Right to present petition:
Where a company is being wound up voluntarily or subject to the supervision of the Court, a petition for its winding up by the Court may be presented by any person authorised to present petition of winding up by the Court (under Section 304).

Winding up order on such petition:
The Court shall not make a winding up order on a petition presented to it as above unless it is satisfied that the voluntary winding up or winding up subject to the supervision of the Court cannot be continued with due regard to the interests of the creditors or contributories or both or it is in the public interest so to do.

Question 15

Official Liquidator

Answer 15

A person appointed to carry out the winding up of a company is called liquidator.
If the winding up is through Court, the term used for such person is official liquidator.

Question 16

Duties of Official Liquidator

Answer 16

The duties of liquidator include:
a) to get in and realise the property of the company,
b) to pay its debts, and
c) to distribute the surplus (if any) among the members.
The official liquidator acts under the supervision of the Court, through a recognized reporting system.

Question 17

Role of Provisional Manager

Answer 17

The Court may appoint a provisional manager of the company till the making of a winding up order.

The main function of a provisional manager is the preservation and control of the affairs and assets of the company pending the hearing of the winding up application.

Question 18

Appointment of official liquidator [Section 315]:
Appointment to be made from panel of persons

Answer 18

For the purpose of the winding up of companies by the Court, the Commission shall maintain a panel of persons from whom the Court shall appoint a provisional manager or official liquidator of a company ordered to be wound up.

The Commission may of its own, remove the name of any person from the above panel on the grounds of misconduct, fraud, misfeasance, breach of duties or professional incompetence after giving him a reasonable opportunity of being heard.

Question 19

Appointment of official liquidator [Section 315]:
Experience and compliance requirement

Answer 19

The panel shall consist of persons having at least 10 years’ experience in the field of accounting, finance or law and as may be specified by the Commission such other persons, having at least 10 years’ professional experience.

The person appointed on the panel shall be subject to such code of conduct and comply with the requirement of any professional accreditation programs as may be specified by the Commission.

Question 20

Appointment of official liquidator [Section 315]:
Restriction on appointment

Answer 20

A person shall not be appointed as provisional manager or official liquidator of more than 3 companies at one point of time.

Question 21

Appointment of official liquidator [Section 315]:
Restriction on powers of provisional manager

Answer 21

Where a provisional manager is appointed by the Court, the Court may limit and restrict his powers by the order appointing him or by a subsequent order, but otherwise he shall have the same powers as a liquidator.

Question 22

Appointment of official liquidator [Section 315]:
Declaration to be filed and security by the liquidator

Answer 22

On appointment as provisional manager or official liquidator, as the case may be, such liquidator shall file a declaration within 7 days from the date of appointment in the specified form disclosing conflict of interest or lack of independence in respect of his appointment, if any, with the Court and such obligation shall continue throughout the term of his appointment.

The Court may determine whether any, and what, security is to be given by any official liquidator on his appointment.

Question 23

Appointment of official liquidator [Section 315]:
Provisional manager may be appointed as official liquidator

Answer 23

While passing a winding up order, the Court may appoint a provisional manager, if any, as the official liquidator for the conduct of the proceedings for the winding up of the company.

Question 24

Appointment of official liquidator [Section 315]:
More than one liquidators

Answer 24

If more than one persons are appointed to the office of official liquidator, the Court shall declare whether any act by the Act required or authorised to be done by the official liquidator is to be done by all or any one or more of such persons.

In case of any dispute or any varying stance amongst the liquidators, the matter shall be referred to the Court for an appropriate order in chambers in the presence of the parties concerned.

Question 25

Appointment of official liquidator [Section 315]:
Appointment of person not named in the panel

Answer 25

The Court may, on the application of creditors to whom amounts not less than 60% of the issued share-capital of the company being wound up are due, after notice to the registrar, appoint a person whose name does not appear on the panel maintained for the purpose, to be the official liquidator.

Question 26

Appointment of official liquidator [Section 315]:
Quit/resign and casual vacancy

Answer 26

An official liquidator shall not resign or quit his office before conclusion of the liquidation proceedings except for reasons of personal disability to the satisfaction of the Court.

Any casual vacancy in the office of an official liquidator occurred due to his death, removal or resignation, shall be filled up by the Court by the appointment of another person from the panel maintained.

However, in case of resignation, the outgoing official liquidator shall, unless the Court directs otherwise, continue to act until the person appointed in his place takes charge.

Question 27

Statement of affairs to be made to official liquidator [Section 320]
Requirement

Answer 27

Where the Court has appointed a provisional manager or made a winding up order and appointed an official liquidator, there shall be made out and submitted to the provisional manager or official liquidator, a statement as to the affairs of the company in the prescribed form, verified by an affidavit, and containing the following particulars, namely:
a) particulars of the company’s assets, debts and liabilities;
b) the detail of cash balance in hand and at the bank;
c) the names and addresses of the company’s creditors stating separately the amount of secured debts and unsecured debts, and, in the case of secured debts, particulars of the securities given, their value and the dates when they were given.
d) the names, residential addresses and occupations of the persons from whom debts of the company are due and the amount likely to be realised therefrom;
e) where any property of the company is not in its custody or possession, the place where and the person in whose custody or possession such property is;
f) full address of the places where the business of the company was conducted during the 180 days preceding the relevant date and the names and particulars of the persons-in-charge of the same;
g) details of any pending suits or proceedings in which the company is a party; and
h) such other particulars as may be prescribed or as the Court may order or the provisional manager or official liquidator may require in writing, including any information relating to secret reserves and personal assets of directors.

Question 28

Statement of affairs to be made to official liquidator [Section 320]
Relevant date and time limit

Answer 28

The “relevant date” means, in a case where a provisional manager is appointed, the date of his appointment, and, in a case where no such appointment is made, the date of the winding up order.
The statement of affairs shall be submitted within 15 days from the relevant date, or within such extended time not exceeding 45 days from that date as the official liquidator or provisional manager or the Court may, for special reasons, appoint.

Question 29

Statement of affairs to be made to official liquidator [Section 320]
Obligation to submit and verify

Answer 29

The statement of affairs shall be submitted and verified by persons who are at the relevant date the directors, chief executive, chief financial officer and secretary of the company.
The provisional manager or official liquidator, subject to the direction of the Court, may also require to make and submit to him a statement in the prescribed form as to the affairs of the company by some or all of the persons:
a) who have been directors, chief executives, chief financial officer, secretary or other officers of the company within one year from the relevant date;
b) who have taken part in the formation of the company at any time within one year before the relevant date;
c) who are in the employment of the company, or have been in the employment of the company within the said year, and are in the opinion of the official liquidator or provisional manager capable of giving the information required and to whom the statement relates.
Any person making the required statement of affairs shall be entitled to and be paid by the official liquidator or the provisional manager, as the case may be, the reasonable expenses incurred in preparation of such statement.

Question 30

Statement of affairs to be made to official liquidator [Section 320]
Penalty

Answer 30

Any contravention or default in complying with above requirements shall be an offence liable to a daily penalty of level 2 on the standard scale.
Without prejudice to the operation of any provisions imposing penalties in respect of any such default as aforesaid, the Court which makes the winding up order or appoints a provisional manager may take cognizance of an offence and try the offence itself in accordance with the procedure laid down in the Code of Criminal Procedure, 1898, for the trial of cases by Magistrates and further direct the persons concerned to comply with the above provisions within such times as may be specified by it.

Question 31

Statement of affairs to be made to official liquidator [Section 320]
Right to inspection, copy or extracts

Answer 31

Any person stating himself in writing to be a creditor or contributory of the company shall be entitled, by himself or by his agent, at all reasonable times, on payment of the prescribed fee, to inspect the statement of affairs submitted, and to a copy thereof or extract therefrom.

Any person untruthfully so stating himself to be a creditor or contributory shall be guilty of an offence under section 182 (Giving false information to a public servant in order to cause him to use his lawful power to the injury or annoyance of any person) of the Pakistan Penal Code, 1860, and shall, on the application of the official liquidator or provisional manager, be punishable accordingly.

Question 32

Report by official liquidator [Section 321]
Requirement

Answer 32

Where the Court has made a winding up order and appointed an official liquidator, such liquidator is required to submit a report to the Court containing the following particulars:
a) the nature and details of the assets of the company including their location and current value duly ascertained by a registered valuer;
b) the cash balance in hand and in the bank, if any, and the negotiable securities, if any, held by the company;
c) the amount of authorised and paid up capital;
d) the existing and contingent liabilities of the company indicating particulars of the creditors, stating separately the amount of secured and unsecured debts, and in the case of secured debts, particulars of the securities given;
e) the debts due to the company and the names, addresses and occupations of the persons from whom they are due and the amount likely to be realised on account thereof;
f) debts due from contributories;
g) details of trademarks and intellectual properties, if any, owned by the company;
h) details of subsisting contracts, joint ventures and collaborations, if any;
i) details of holding and subsidiary companies, if any;
j) details of legal cases filed by or against the company;
k) any other information which the Court may direct or the official liquidator may consider necessary to include.

The official liquidator shall also include in his report the manner in which the company was promoted or formed and whether in his opinion any fraud has been committed by any person in its promotion or formation, or by any director or other officer of the company in relation to the company since its formation.

The official liquidator shall also make a report on the viability of the business of the company or the steps which, in his opinion, are necessary for maximising the value of the assets of the company.

The official liquidator may also, if he thinks fit or upon directions of the Court, make any further report or reports.

Question 33

Report by official liquidator [Section 321]
Time Limit

Answer 33

The official liquidator shall, as soon as practicable after receipt of the statement of affairs and not later than 60 days, from the date of the winding up order submit the above report to the Court.

A certified copy of the reports aforesaid shall also be sent to the registrar simultaneously with their submission to the Court.