Chapter 11: Corporate Insolvency Flashcards
A company is an artificial person.
True.
What is the dissolution of a company called?
Liquidation or Winding up
When does the dissolution of a company commence?
At the time of the presentation of a petition for the winding up.
During the process leading up to the winding up of a company, the company does ** not** exist. (T/F)
False
What are some of the situations that bring a company to the point of winding up?
When creditors or the company itself seek to minimize loss by closing down the business and selling all its assets; winding up within a group to streamline operations; resolving a deadlock between directors.
What is a special resolution in the context of winding up a company?
A resolution passed for the purpose of winding up a company at a general meeting with at least twenty-one days’ notice.
What are the consequences of winding up a company under the Corporate Insolvency Act?
Transfers of share or stocks (except with liquidator’s sanction) and changes in member status are void, but corporate state and powers continue until winding up is complete.
What are the kinds of winding up of a company mentioned in the CI Act?
- Winding up by the Court
- Voluntary winding up
- Members’ voluntary winding up
- Creditors’ voluntary winding up
What are the grounds for winding up a company by the courts under the Corporate Insolvency Act?
Special resolution to be wound-up by the Court; Inability to pay debts; Expiration of a fixed duration or occurrence of an event leading to dissolution; Membership reduced below two; Company formed for an unlawful purpose; Fraudulent incorporation; Just and equitable grounds.
When is a company deemed unable to pay its debts?
When a prescribed fee is due, a written demand is served more than thirty days prior, and the company fails to pay, secure, or compound it satisfactorily.
What factors does the court consider when determining whether a company is unable to pay its debts?
Contingent and prospective liabilities of the company.
What is the most common ground for petitioning to wind up a company by the courts?
Inability to pay its debts.
How can a company save itself from a petition of winding up due to inability to pay debts?
By showing that the debt is not owed.
If the precise amount of debt a company owes is not clear, the court will make a winding-up order. (T/F)
True.
Is the court’s power to order winding up due to inability to pay debts discretionary?
True.
Who must be satisfied that a company is unable to pay its debts?
The court.
What is a statutory meeting, and why is it relevant to liquidation?
A meeting of members required within three months of commencing business; failure to hold it incurs penalties.
What is the minimum number of persons required to constitute a private and a public company?
Private: two; Public: seven.
Does a company’s financial position matter in a winding-up petition when it was formed for an unlawful purpose or incorporated fraudulently?
No.
What is the ‘just and equitable cause’ principle?
Allows courts to wind up a company if its substratum is gone, there is deadlock, exclusion of participation, or a small private company resembles a partnership.
What was the ruling in Ebrahimi v Westbourne Galleries Ltd?
The court can apply equitable considerations to legal rights under the ‘just and equitable’ principle.
What is the procedure for winding up by the court?
Petition presented; Court may dismiss, adjourn, or order winding up; If just and equitable, the court orders winding up.
What is the procedure for voluntary winding up?
Company passes a resolution; Liquidator appointed; Liquidator winds up affairs and distributes assets.
What is the key difference between court-ordered and voluntary winding up?
Court-ordered is initiated by the court, voluntary is initiated by the company.
