SU12 Flashcards
Define: Winding up
Procedure by which the companies assets are sold, its debts paid and any money left over is divided among the members according to their rights
Modes of winding up a company
- compulsory winding-up: By the court initiated by an application brought by a creditor
- voluntary winding-up: either by creditors, shareholders or members voluntary winding up- both initiated by special resolution
Alternative to winding up a company
The court can make a business rescue order in any proceedings for the winding-up of the company or the enforcement of security. Business rescue proceedings suspend liquidation proceedings
Modes of winding up a company: By the court
*Section 12(1) of 1973 Companies Act
**Court which has jurisdiction is Provincial or Local Division of the HC having jurisdiction over the area in which the company has its registered office or main place of business. If registered office or main place of business is in different areas, both courts have jurisdiction.
Solvent vs Insolvent companies winding up
Solvent- s 79-81 of the Companies Act 2008
Insolvent- s 337-426 of the Companies Act 1973
When a company may be wound up by court
a. Special resolution (s 344(a)& 81(1)(a)(i))
b. Failure to commence or continue with business (s 344(c))
c. Loss of capital (s 344(e))
d. Inability to pay debts ((s 344(f) & s 345)
e. Dissolution of external company (s 344(g))
f. Just and equitable (s 344(h) & s 81(1)(c)&(d)
a. Special resolution
*Court may wind up a company if it has passed a special resolution to be wound up by court
**SR must be passed in a general meeting and registered within the registrar within 6mnths of being passed
b. Failure to commence or continue with business -limited to insolvent companies
The court can wound up a company if it has not commenced its business for a year from its incorporation or if it has suspended its business for a whole year. -limited to insolvent companies
c. Loss of capital -limited to insolvent companies
Court may wind up a company if 75% of its issued share capital has been lost or become useless for its business.
d. Inability to pay debts -limited to insolvent companies
Court may wind up a company if it’s unable to pay its debts as described in Section 345 of CA, which determines that a company is deemed unable to pay its debts in the following cases:
A creditor, to whom at least R 100.00 is due, has left a demand for payment which has been neglected for 3 weeks;
**A warrant of execution issued on a judgment against company has been returned by sheriff with endorsement that he couldn’t find disposable property sufficient to satisfy judgment or that the property he found didn’t, upon sale, satisfy the process;
**It is proved to the satisfaction of court that the company is unable to pay its debts.
e. Dissolution of external company- limited to insolvent companies
Court may wind up an external company if it has been dissolved in country in which it was incorporated, or has ceased to carry on business, or is carrying on business only for purpose of winding up its affairs.
It may be liquidated as if it were an independent entity, even if the foreign company to which it is ‘related’ isn’t liquidated or dissolved.
f. Just and equitable- both in/solvent companies
Court may wind up a company if it appears that it is just and equitable that it should be wound up.
However, “just and equitable” ground is not regarded as some limitless ground for winding up a company and court only resorted thereto in specific cases as they are reluctant to extend its application.
The following instances have been held as just and equitable by the court: Rand Air v Ray Bester
- Where main object for which company was formed isn’t possible of being attained.
- Where company’s objects are illegal.
- Where there is a justifiable lack of confidence in the conduct and management of the company’s affairs.
- Where a voting power deadlock cannot be resolved except by winding-up.
- Where the company is a “quasi-partnership” and circumstances exist which would be good grounds for dissolving a partnership.
- Where minority shareholders are oppressed by controlling shareholders
- Founded on personal relationship of confidence and trust similar to partners in partnership. Usually requires members to act reasonably and honestly towards each other and with friendly co-operation in running company’s affairs. If 1 or more members acts contrary to spirit of this relationship and, in so doing, effectively destroys it, court may hold it just and equitable to wind up company
Locus standi: Parties who may apply for winding-up of insolvent company- s 346
The onus in each case is on the applicant to establish that he has the requisite locus standi to bring the application
Parties who may apply for winding-up of solvent company- s 81
- Special resolution- the company
- Just and equitable- the company, creditors, directors, shareholders
- Conversion of voluntary winding-up into a court winding-up- the company
- No reasonable prospect of business rescue succeeding- the practitioner appointed
- Termination of business rescue- creditors
- Deadlock in voting - the company or directors/shareholders
- Fraud illegality or misapplication of co. assets – any shareholder with leave of the court
- Failure to comply with compliance notice - the CIPC or Take over regulation Panel.
Parties who may apply for winding-up of insolvent company- s 346: The company
- The company
- One or more creditors
- One or more registered members
- Any or all of the above parties
- The Master
- A provisional/ final judicial manager
Steps prior to application: S>M>N
- Security for costs
- Master’s report
- Notification of certain interested parties
Steps prior to application: Security for costs
Party applying for winding-up must give sufficient security for payment of all fees and charges
Steps prior to application: Master’s report
Before presenting his application to court, applicant must serve a copy on Master, who may report to court any facts which he has ascertained which may justify postponing or dismissing the application
Steps prior to application: Notification for certain interested parties
When presenting application to court, applicant must also furnish a copy of it to:
a. Every registered trade union which represents any of the company’s employees;
b. The employees themselves;
c. SARS;
d. The company, unless application was made by the company
Power of the court- Section 347 of CA
Court may grant or dismiss any application for winding-up.
In practice, court usually doesn’t make a final order immediately, but makes a provisional winding-up order and issues a rule nisi.
*Court’s power to grant application for winding-up is discretionary, but is limited where creditor has proved that company is unable to pay its debts, in which event, creditor is entitled to a winding-up order and court needn’t be satisfied that winding-up will be to advantage of company’s creditors.
**The reason for refusing is essentially that the application amounts to abuse of the winding-up procedure.
**Where application is brought by members of company, court won’t make a winding-up order if some other remedy is available and they act unreasonably in seeking to have company wound up instead of pursuing the remedy
Voluntary winding up: Member
A members’ voluntary winding-up can take place only if company is unable to pay its debts in full.
In terms of Section 350(1) of the 1973 CA, a resolution to proceed with a members’ voluntary winding-up is void unless, prior to registration of the resolution, either:
a. security is furnished to Master’s satisfaction for payment of the debts of company within 12 months from commencement of winding-up; or
b. Master dispenses with the security on production of both an affidavit by the directors of company that it has no debts and a certificate by the auditor of company to that effect.
Voluntary winding up: Creditor
May be resorted to where the company is unable to pay its debts and because an application to court is avoided, voluntary winding-up may bring about a saving of costs.
The procedure resembles winding up by a court in that meetings of creditors are held and the liquidator is subject to the direction of creditors who have proved their claims
Consequences of winding up
- Commencement of winding up
- Directors divested of powers and control
- Subsequent unauthorized dispositions void
- Stay of proceedings
- Notice of winding-up
- Lodging of statement of affairs with Master
Consequences of winding up: Commencement of winding up
Section 348 of CA
A winding-up by the court is deemed to commence at the time of the presentation to court of the application for winding-up.
**A voluntary winding-up commences when the relevant special resolution of members is registered with the RC.
**Determining the precise time of commencement is important because various consequences of winding-up come into effect when the winding-up commences, as opposed to when the court makes a provisional or final winding-up order.
Commencement of winding up: Directors divested of powers and control
- Winding-up establishes a concursus creditorum, which is aimed at ensuring that company’s property is collected and distributed among creditors in the prescribed order of preference.
- Consequences ensue:
Powers of directors cease and directors become functus officio (no longer in office).
**Company’s property is deemed to be in custody and under control of the Master until a provisional liquidator has been appointed.
**Company may not continue with its business except in so far as may be necessary for its beneficial winding-up
NB! Company doesn’t lose its corporate identity, nor does it lose its assets unless so ordered
Consequences of winding up: Subsequent unauthorized dispositions void
- Transfer of shares w/o permission
- Disposition of property not sanctioned
Consequences of winding up: Stay of proceedings
a. All civil proceedings by or against company are suspended until after 4 weeks of the appointment of liquidator and 3 weeks notice in writing.
b. Any attachment or execution put in force against the assets is void
c. Sale in execution= no transfer to buyer
Consequences of winding up: Notice of winding-up in case of voluntary winding up
A company which has passed a resolution for its voluntary winding-up must, within 28 days after registration of resolution, give notice in Gazette and lodge a certified copy of resolution to Master together with the following:
*In the case of members’ voluntary winding-up: A certified copy of any resolution passed by the company, nominating a liquidator
**In the case of creditors’ voluntary winding-up: Two certified copies of a statement setting out affairs of the company
Consequences of winding up: Notice of winding-up in case of voluntary winding up
Copy of the order of winding up must be furnished to:
1. Gazette
2. Registered trade union
3. Employee
4. SARS
5. Company
…by the Master
Consequences of winding up: Lodging of statement of affairs with Master
2 copies of the winding up order must be lodged with the Master within 14 days of the date of the winding up order
