Winding up of a company

Question 1

Liquidation

Answer 1

Company dissolution procedure under which the assets of a company are realised and distributed to creditors in the order provided in the IA 1986

Question 2

Whose interests does the liquidator act in?

Answer 2

Unsecured creditors and members

Question 3

Re German Date Coffee Co 1882

Answer 3

Just and equitable winding up possible if the substratum or principal object of the company has failed

Question 4

Re T E Brinsmead and Sons 1898

Answer 4

Just and equitable winding up possible where the company was formed to carry out a fraud or illegal business

Question 5

Ebrahimi 1973

Answer 5

The just and equitable WU ground not confined to particular closed categories of circumstances

Question 6

Re A Company 1983

Answer 6

If a remedy under s994 available to creditor, court can refuse WU

Question 7

Re A Company (Nos 6544 and 6545 of 2003) 2003

Answer 7

Court refused a WUP of two companies involved in the operation of unlawful schemes as no deliberate wrongdoing and schemes had been brought to an end

Question 8

Locus standi for WUP

Answer 8

• company for its own WU
• creditor if owed £750 or more or supported by other creditors who are owed at least £750 in total
• a contributory if he has tangible interest in the liquidation

Question 9

Contributory

Answer 9

Any person liable to contribute to the assets of the company on the winding up, including a person who has been a member within the 12 months preceding the date of the presentation of the petition

Question 10

After the commencement of the WU…

Answer 10

Any disposition of the company’s property and transfer of shares or alteration in the status of the company’s members is void unless the court otherwise directs

Question 11

When a WU order is made…

Answer 11

All directors’ appointments are terminated and all employees are dismissed

Question 12

Denney v John Hudson and Co Ltd 1992

Answer 12

The exercise of the court’s discretion to allow pre-liquidation payments depends on the payee’s good faith, the transaction being likely to be for the benefit of existing creditors and the parties to the transaction acting in the ordinary course of the business

Question 13

LDX International Group LLP v Misra Ventures Ltd 2018

Answer 13

If WUP and cross-claim, the cross-claim need only be genuine and serious and exceed the petition debt

Question 14

A company may resolve to wind up voluntarily by passing one of the following types of resolution: (2)

Answer 14

• an ordinary resolution where the articles specify that the company is to be wound up after the lapse of a certain period of time or on the happening of a particular event
• a special resolution to wind up voluntarily (no reason need be specified)

Question 15

In a voluntary liquidation, the liquidator has the power to continue…

Answer 15

The company’s business so far as he considers it necessary for the beneficial winding up of the company

Question 16

How can a liquidator be removed?

Answer 16

By court order or by a general meeting of creditors’ resolution

Question 17

What is the contributories’ contribution limited to?

Answer 17

The amount unpaid on the shares of which he is a present or past member

Question 18

A person who suffers loss or damage as a result of the liquidator’s disclaimer of onerous property is a who?

Answer 18

A creditor who may prove for the loss or damage in the winding up

Question 19

Fraudulent trading

Answer 19

Any business of the company that has been carried on with the intent to defraud creditors or any other fraudulent purpose

Question 20

Who can be responsible for fraudulent trading?

Answer 20

Only those who were knowingly parties to it

Question 21

Re Patrick and Lyon Ltd 1933

Answer 21

For FT, there has to be ‘actual dishonesty, involving real moral blame’

Question 22

Who can apply to the court for FT?

Answer 22

Only the liquidator

Question 23

West Mercia Safetywear Ltd v Dodd 1988

Answer 23

A director of an insolvent company must have regard to the interests of its creditors

Question 24

Morris v Bank of India 2002

Answer 24

Knowledge for FT can be imputed

Question 25

What defence is there available to WT?

Answer 25

A director must have taken every step he ought to have taken with a view to minimising the potential loss to the creditors

Question 26

Why is WT likely to be the most difficult problem for directors?

Answer 26

Because of the imprecision of determining how far directors have to go to avoid liability for wrongful trading

Question 27

Evidence of insolvency that any director should have known about might include: (4)

Answer 27

• increasing pressure from creditors
• late filing of accounts
• insolvency on the balance sheet basis
• only paying creditors when proceedings or stat demands have been issued and judgments entered against the company

Question 28

As soon as a director is aware there is no reasonable prospect of avoiding liquidation…

Answer 28

He must raise the problem with the rest of the board

Question 29

Re A Company 1996

Answer 29

If a pessimistic director fails to persuade his colleagues, he should then resign

Question 30

To whom does misfeasance apply?

Answer 30

Any officer of the company and any person who has been concerned or has taken part in the promotion, formation or management of the company

Question 31

Thorne v SIlverwood 1994

Answer 31

A successful use of s216 and 217

Question 32

Re Kayford Ltd 1975

Answer 32

Money held on a special deposit account for mail order customers trust asset not available to liquidator

Question 33

Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd 1976

Answer 33

Property over which the vendor has validly reserved title pending payment trust asset not available to liquidator

Question 34

What happens to trust assets on liquidation?

Answer 34

Must be returned to the beneficial owner

Question 35

Once the liquidator has collected in the company’s assets, he can…

Answer 35

Distribute them among those entitled in accordance with the statutory order of priority

Question 36

Statutory order of priority (6)

Answer 36

• fixed charges
• expenses of winding up
• preferential debts
• floating charges
• ordinary unsecured creditors
• members