Chapter 12: Introduction to Winding up

Question 1

Winding up definition (5)

Answer 1

1. proceedings by which a company is dissolved
2. also called the ‘liquidation’
3. assets of the company are disposed of
4. debts are paid off out of realised assets or from contributories
5. if any surplus is left, it is distributed to shareholders in proportion of ownership

Question 2

Modes of winding up (3)

Answer 2

• by the Court; or
• voluntary; or
• subject to the supervision of the Court

Question 3

Circumstances in which a company may be wound up by Court (13)

Answer 3

1. special resolution > resolved to be wound up by the Court
2. default = delivery of statutory report to registrar or holding a statutory meeting
3. default = holding any two consecutive AGMs
4. default = filing F/S or annual returns to the registrar for last two years
5. number of members is reduced:
   Public = below three
   Private = below two
6. unable to pay its debts
7. If company is involved in inappropriate activities
8. Listed Company ceases to be listed
9. Court’s opinion says its just and equitable for company to be wound up
10. company ceases to have a member
11. Sole business = licensed activity but license is revoked
12. licence granted for association not for profit to a company has been revoked or it has failed to comply with provisions
13. listed company suspends its business for a whole year

Question 4

If company is involved in inappropriate activities (5)

Answer 4

1. Conceived, or brought forth for or carrying, unlawful or fraudulent activities
2. Carrying on business prohibited or restricted by any law etc in force in Pakistan
3. Conducting its business in a manner oppressive to the minority members (not less than 10% voting power) or passionate members
4. Run and managed by persons who fail to maintain proper and true accounts ,or commit fraud, misfeasance or malfeasance in relation to the company
5. Managed by persons who refuse to act according to requirements of MOA/AOA/this Act or failed to carry out directions of SECP/Registrar.

Question 5

Define Unlawful activity (3)

Answer 5

• Raising unauthorised deposits from general public, e.g. referral marketing, MLM, Pyramid and Ponzi Schemes, locally or internationally
• Any other business activity notified by SECP to be against public policy or a moral hazard
• Where in return of a deposit, a payment/grant of property is promised/assured at future date through lottery

Question 6

When is a company deemed unable to pay its debt? (3)

Answer 6

1. Creditor > Rs. 100,000 has served a demand at registered office and company has neglected to pay /secure/compound W30D
2. If court or any other competent authority = orders in favour of creditor, but still he remains unsatisfied (partly/fully)
3. If, it is proved to the Court that company is unable to pay its debts, after considering the contingent and prospective liabilities of the company.

Question 7

Condition for petition for WU by the company (3)

Answer 7

The Court shall not give a hearing to such petition of company until it has furnished particulars of its:
* assets and liabilities
* business operations
* suits or proceedings pending against company

Question 8

Condition for petition for WU by the creditor/s (2)

by contingent or prospective creditors

Answer 8

• Establish security for costs as the court thinks reasonable
• A prima facie case for winding up has been established to the satisfaction of
  the Court

Question 9

Condition for petition by the Contributory (2)

Answer 9

1. Number of members is reduced (Pvt<2) (Pub<3)
2. Shares (due to which he is a contributory) were originally allotted to him or have been held by him registered under his name for at least 180 days during 18 months before commencement of winding up

or devolved on him through death of a former holder

Question 10

Condition for petition by the registrar (2)

Answer 10

• Sanction of the SECP should be obtained before presentation of petition.
• Sanction shall not be given unless providing opportunity of being heard to the company

Question 11

Condition for petition of WU by SECP or its officer (4+1)

Answer 11

After an investigation into the affairs of company, it have revealed that:
- It was formed for any fraudulent or unlawful purpose
- It is carrying on a business not authorised by its MOA
- Its business is being conducted in a manner oppressive to any of its members or persons concerned in the formation of company
- Management has been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members.

Petition shall be presented AFTER the opportunity of being heard is provided to the Company
(No investigation required where a licence is revoked and sole business of the company is the licensed activity)

Question 12

On what time is winding up said to be commenced?

Answer 12

shall be deemed to commence at the time of the presentation of the petition for the winding up.

Question 13

Step # 2 - Appointment of Provisional Manager (3)

by whom? till when? OL? powers?

Answer 13

• Court may appoint a provisional manager (PM ) till the making of a winding up order
• On passing a winding up order, Court may appoint PM as the official liquidator (OL)
• PM shall have same powers as of OL (unless Court have limited and restricted)

Question 14

Step # 3 - Appointment of Official Liquidator: Panel by SECP (6+2)

by whom, casual vacancy, Criteria, creditors, removal

Answer 14

1. SECP shall maintain a panel of persons from whom the Court shall appoint a PM or OL
2. If casual vacancy in office of OL = filled up by by appointment of another person from the panel
3. The panel shall consist of:
   - Persons having at least 10 years experience in the field of accounting, finance or law
   - Such persons as specified by SECP, having at least 10 years professional experience
4. Application of creditors having >60% of paid up capital to appoint person not in panel to be liquidator (Court may do it)
5. Person 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 SECP.
6. SECP may on its own, remove the name of any person from the panel on the grounds of misconduct, fraud, misfeasance, breach of duties or professional incompetence
   (after providing a reasonable opportunity of being heard)

Question 15

Step # 3 - Appointment of Official Liquidator: other requirements (7)

Answer 15

1. A person shall not be appointed as PM or OL of more than 3 companies at the same time.
2. On appointment as PM/OL he shall file a declaration W7D of appointment in the specified form disclosing conflict of interest or lack of independence, if any, with Court
3. If more than 1 OL are appointed, Court shall specify respective powers
4. In case of any dispute or any varying stance amongst liquidators, the matter shall be referred to Court for an appropriate order in chambers in the presence of these all.
5. Court may determine any security to be given by any OL on his appointment.
6. An OL shall not resign or quit his office before conclusion of liquidation proceedings (except for reasons of personal disability to the satisfaction of the Court)
7. 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 16

Step # 4 - Getting prepared Statement of Affairs : WHEN (2+2)

when to prepare statement of affairs?

Answer 16

1. Within 15 days from the relevant date (or time extended by OL, PM, or Court till 45 days)
2. Relevant date means:
   - Date of appointment of PM; or
   - Date of winding up order, where no PM is appointed

Question 17

Step # 4 - Getting prepared Statement of Affairs : WHO

(2+3)

Answer 17

Statement shall be submitted and verified by persons who:
1. were directors, CEO, CFO, secretary and employee at the relevant date

2. Have within 1 year of revelant date :
   - Been Directors, CEO, CFO, secretary or other officer of the company
   - Taken part in the formation of company
   - Been in employment of the company and are capable of giving information

Any of the above persons shall be entitled to and be paid by PM/OL, the reasonable expenses incurred in preparation of such statement.

Question 18

Step # 4 - Getting prepared Statement of Affairs : Particulars (8)

Answer 18

1. Particulars of the assets, debts and liabilities
2. Detail of cash balance in hand and at the bank
3. Names and addresses of creditors stating separately amount of secured and unsecured debts, and particulars of the securities given (their value and dates when they were given).
4. Debts due to the company and the particulars of the persons from whom they are due
5. If any property of company is not in its custody or possession, place and person in whose
   custody or possession such property is;
6. Full address of the places where business of company was conducted during 180 days preceding the relevant date and the names and particulars of persons incharge of the same
7. Details of any pending suits or proceedings in which the company is a party
8. Such other particulars as may be prescribed or as the Court/PM/OL may order

default in complying = penalty of level 2

Question 19

Step # 5 - Report to the court (11)

Answer 19

OL shall as soon as practicable, after receipt of statement of affairs and not later than 60 days from date of winding up order:
1. Nature and details of the assets of the company (including location and current value)
2. Cash balance in hand and in the bank and negotiable securities held by the company
3. Amount of authorised and paid up capital
4. Existing and contingent liabilities of company indicating particulars of the creditors
(stating separately secured and unsecured debts and particulars of the securities given)
5. Debts due to the company and the particulars of the persons from whom they are due
6. Debts due from contributories
7. Details of trademarks and intellectual properties owned by the company
8. Details of subsisting contracts, joint ventures and collaborations
9. Details of holding and subsidiary companies
10. Details of legal cases filed by or against the company
11. Any other information which the Court may direct or OL may consider necessary

also include in his report the manner in which company was promoted or formed and whether in his opinion any fraud has been committed

Question 20

Step # 5 - Report to the court (Sec 321): OTHER REPORTS [4]

Answer 20

1. report on the viability of the company’s business
2. or the steps which are necessary for maximising the value of the assets of the company
3. make any further report or reports
4. A certified copy of the above reports shall also be sent to the registrar simultaneously with their submission to the Court

Question 21

How can a company be voluntarily wound up (2+2)

Answer 21

1. If company in general meeting passes a resolution requiring voluntarily winding up:
   - When period, if any, fixed by articles expires
   - Where event, if any, occurs the occurrence of which AOA provides for dissolution
2. f the company passes a special resolution that the company be wound up voluntarily

Question 22

Winding up subject to supervision of the Court (2)

Answer 22

1. Where a company has passed resolution for voluntary winding up, court may make an order that it shall continue but under supervision of Court with such terms and conditions as the Court thinks just:
   - on its own motion
   - on application by person entitled
2. Petition of continuance of voluntary winding up under supervision of court shall be deemed to be petition for winding up by court for purposes of legal proceedings

Question 23

Petition to convert other modes to winding up by Court (2)

Answer 23

• Company being wound up voluntarily or under supervision.
• Person entitled presents a petition for winding up BY COURT
• Court shall make WU order if its 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.