Introduction to Winding up

Question 1

THE CONCEPT AND BASICS OF WINDING UPCompany

Answer 1

▪ Term ‘winding up’ may be defined as the proceedings by which a company is dissolved
(i.e. the life of a company is put to an end).
▪ The winding up of the company is also called the ‘liquidation’ of the company.
▪ During this process, the assets of the company are disposed of, the debts are paid off out of
the realized assets or from contributories
▪ If any surplus is left, it is distributed among members in proportion to their shareholding in
the company.
▪ The company is dissolved after completion of the winding up proceedings.
▪ On the dissolution, the company ceases to exist.

Question 2

Modes of winding up (Sec 293)

Answer 2

The winding up of a company may be either
▪ 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 (Sec 301)

Answer 3

A company may be wound up by the Court if:
▪ Company has, by special resolution, resolved to be wound up by the Court
▪ Default is made in holding statutory meeting or delivering statutory report to registrar
▪ Default is made in holding any 2 consecutive AGM
▪ Company has made a default in filing with registrar financial statements or annual returns
for immediately preceding 2 consecutive financial years; or
▪ If number of members is reduced below 3 (public company) or 2 (private company)
▪ Company is unable to pay its debts; or
▪ It ceases to be a listed company, if was so.
▪ Court is of opinion that it is just and equitable that the company should be wound up; or
▪ Company ceases to have a member; or
▪ Sole business of the company is the licensed activity and the licence have been revoked
▪ Licence granted u/s 42 has been revoked or company has failed to comply requirements or
where liquidator of such a company has failed to complete the voluntary winding up
proceedings within 1 year from the date of commencement of winding up; or
▪ A listed company suspends its business for a whole year.
▪ Company is
- Conceived, or brought forth for or carrying, unlawful or fraudulent activities; or
- Carrying on business prohibited or restricted by any law etc in force in Pakistan; or
- Conducting its business in a manner oppressive to the minority members (not less than
10% voting power) or persons concerned with formation or promotion of company; or
- 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
- 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 4

Promotion or carrying on of which Scheme shall be unlawful

Answer 4

Promotion or carrying on of any of the following scheme shall be deemed to be unlawful:

▪ Raising unauthorised deposits from general public, indulging in referral marketing, multi-
level 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 (in cash, coupons, certificates, tickets or other documents), a
payment at future date or grant of property/right/benefit, determined by chance or lottery
etc, is assured or promised

Question 5

When company deemed unable to pay its debts?

Answer 5

▪ If a creditor, to whom the company is indebted in a sum exceeding Rs.100,000, has served a
demand at registered office requiring company to pay amount; and company has neglected
to pay/secure/compound it within 30 days to the satisfaction of creditor; or
▪ If court or any other competent authority orders in favour of creditor and still he remains
unsatisfied (in full or in parts); or
▪ 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 6

Conditions applicable to the Contributory for petition of winding up

Answer 6

▪ Number of members is reduced below 2 or 3; and

▪ Shares (due to which he is a contributory) were originally allotted to him or
have been held by him, and registered in his name, for at least 180 days
during 18 months before commencement of winding up, or have devolved
on him through death of a former holder

Question 7

Conditions applicable to the Registerar for petition of winding up

Answer 7

▪ 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 8

Conditions applicable to the SECP or its officer for petition of winding up

Answer 8

▪ After an investigation into the affairs of company, it have revealed that:
- It was formed for any fraudulent or unlawful purpose; or
- It is carrying on a business not authorised by its MOA; or
- Its business is being conducted in a manner oppressive to any of its
members or persons concerned in the formation of company; or
- Management has been guilty of fraud, misfeasance or other misconduct
towards the company or towards any of its members.
▪ 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 9

Conditions applicable to the Creditor
(Contingent/
prospective) for petition of winding up

Answer 9

▪ Such security for costs shall be given as the Court thinks reasonable
▪ A prima facie case for winding up has been established to the satisfaction of
the Court;

Question 10

Conditions applicable to the Company for petition of winding up

Answer 10

▪ Shall furnish the particulars of assets & liabilities and business operations

and the suits or proceedings pending against it.

Question 11

when a winding up of a company by the Court shall be deemed to commence?

Answer 11

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 (Sec 306)

Question 12

Appointment of Provisional Manager

Answer 12

▪ 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 13

Panel maintained by SECP

Answer 13

▪ SECP shall maintain a panel of persons from whom the Court shall appoint a PM or OL
▪ Any casual vacancy in office of OL occurred due to his death, removal or resignation, shall
be filled up by the Court by appointment of another person from the panel
▪ 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
▪ Court may, on application of creditors to whom amounts not less than 60% of the issued
share-capital are due, after notice to the registrar appoint a person other than panel
▪ 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 SECP.
▪ SECP may of 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 14

Additional Rules for Official Liquidator

Answer 14

▪ A person shall not be appointed as PM or OL of more than 3 companies at the same time.
▪ On appointment as PM/OL he shall file a declaration within 7 days of appointment in the
specified form disclosing conflict of interest or lack of independence, if any, with Court
▪ If more than 1 OL are appointed, Court shall specify respective powers
▪ 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.
▪ Court may determine any security to be given by any OL on his appointment.
▪ 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)
▪ Provided that 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 15

When Statement of Affairs will be prepared

Answer 15

▪ Within 15 days from the relevant date (or time extended by OL, PM, or Court till 45 days)
▪ Relevant date for purpose of this statement of affairs means
- Date of appointment of PM, if any; or
- Date of winding up order, where no PM is appointed

Question 16

Who will prepare Statement of Affairs?

Answer 16

Statement shall be submitted and verified by persons who
▪ Were directors, chief executive, CFO, secretary and employee at the relevant date
▪ Have within 1 year of relevant date
- Been Directors, Chief Executive, 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 17

Particulars of Statement of Affairs

Answer 17

▪ Particulars of the assets, debts and liabilities;
▪ Detail of cash balance in hand and at the bank;
▪ 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).
▪ Debts due to the company and the particulars of the persons from whom they are due
▪ If any property of company is not in its custody or possession, place and person in whose
custody or possession such property is;
▪ 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;
▪ Details of any pending suits or proceedings in which the company is a party; and
▪ Such other particulars as may be prescribed or as the Court/PM/OL may order
(including any information relating to secret reserves and personal assets of directors)
Any person stating himself in writing to be a creditor or contributory shall be entitled at all
reasonable times, on payment of prescribed fee, to inspect the statement, and to a copy /extract.
Any person untruthfully so stating himself to be a creditor or contributory shall be guilty of an
offence under Pakistan Penal Code, 1860 and shall, on application of OL/PL, be punishable.
Any contravention or default in complying with this section shall attract penalty of level 2

Question 18

Official Liqudator report to the court

Answer 18

OL shall as soon as practicable, after receipt of statement of affairs and not later than 60 days
from date of winding up order, submit a report to Court, containing the following particulars:
▪ Nature and details of the assets of the company
(including location and current value duly ascertained by a registered valuer)
▪ Cash balance in hand and in the bank and negotiable securities held by the company;
▪ Amount of authorised and paid up capital;
▪ Existing and contingent liabilities of company indicating particulars of the creditors
(stating separately secured and unsecured debts and particulars of the securities given)
▪ Debts due to the company and the particulars of the persons from whom they are due
▪ Debts due from contributories;
▪ Details of trademarks and intellectual properties owned by the company;
▪ Details of subsisting contracts, joint ventures and collaborations;
▪ Details of holding and subsidiary companies;
▪ Details of legal cases filed by or against the company;
▪ Any other information which the Court may direct or OL may consider necessary
OL shall also include in his report the manner in which 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 in relation to the company since its formation.

Question 19

Documents which Official Liqudator thinks fit

Answer 19

OL shall also make a report on the viability of the company’s business or the steps which, in
his opinion, are necessary for maximising the value of the assets of the company.
▪ OL may also, if he thinks fit or upon directions of Court, make any further report or reports.
▪ A certified copy of the above reports shall also be sent to the registrar simultaneously with
their submission to the Court.

Question 20

Explain briefly about Voluntary winding up

Answer 20

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

Question 21

Explain breifly about the winding up subject to supervision of the Court?

Answer 21

▪ 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:
- of its own motion or
- on application of any person entitled to apply court for winding up
▪ 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 22

Petition to convert other modes to winding up by Court

Answer 22

▪ 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 Court
▪ Court shall not make a winding up order unless it is satisfied that the voluntary winding up
or winding up subject to the supervision of the Court cannot be continued for interests of
the creditors or contributories or both or it is in the public interest so to do.

Question 23

When will we call Liquadator “Official Liquidator” or “Liquidator”

Answer 23

If the winding up is through Court, the term used is “official liquidator”. But for other modes
we use the word “liquidator”