Winding up of a company Flashcards
Liquidation
Company dissolution procedure under which the assets of a company are realised and distributed to creditors in the order provided in the IA 1986
Whose interests does the liquidator act in?
Unsecured creditors and members
Re German Date Coffee Co 1882
Just and equitable winding up possible if the substratum or principal object of the company has failed
Re T E Brinsmead and Sons 1898
Just and equitable winding up possible where the company was formed to carry out a fraud or illegal business
Ebrahimi 1973
The just and equitable WU ground not confined to particular closed categories of circumstances
Re A Company 1983
If a remedy under s994 available to creditor, court can refuse WU
Re A Company (Nos 6544 and 6545 of 2003) 2003
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
Locus standi for WUP
- 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
Contributory
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
After the commencement of the WU…
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
When a WU order is made…
All directors’ appointments are terminated and all employees are dismissed
Denney v John Hudson and Co Ltd 1992
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
LDX International Group LLP v Misra Ventures Ltd 2018
If WUP and cross-claim, the cross-claim need only be genuine and serious and exceed the petition debt
A company may resolve to wind up voluntarily by passing one of the following types of resolution: (2)
- 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)
In a voluntary liquidation, the liquidator has the power to continue…
The company’s business so far as he considers it necessary for the beneficial winding up of the company
How can a liquidator be removed?
By court order or by a general meeting of creditors’ resolution
What is the contributories’ contribution limited to?
The amount unpaid on the shares of which he is a present or past member
A person who suffers loss or damage as a result of the liquidator’s disclaimer of onerous property is a who?
A creditor who may prove for the loss or damage in the winding up
Fraudulent trading
Any business of the company that has been carried on with the intent to defraud creditors or any other fraudulent purpose
Who can be responsible for fraudulent trading?
Only those who were knowingly parties to it
Re Patrick and Lyon Ltd 1933
For FT, there has to be ‘actual dishonesty, involving real moral blame’
Who can apply to the court for FT?
Only the liquidator
West Mercia Safetywear Ltd v Dodd 1988
A director of an insolvent company must have regard to the interests of its creditors
Morris v Bank of India 2002
Knowledge for FT can be imputed
What defence is there available to WT?
A director must have taken every step he ought to have taken with a view to minimising the potential loss to the creditors
Why is WT likely to be the most difficult problem for directors?
Because of the imprecision of determining how far directors have to go to avoid liability for wrongful trading
Evidence of insolvency that any director should have known about might include: (4)
- 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
As soon as a director is aware there is no reasonable prospect of avoiding liquidation…
He must raise the problem with the rest of the board
Re A Company 1996
If a pessimistic director fails to persuade his colleagues, he should then resign
To whom does misfeasance apply?
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
Thorne v SIlverwood 1994
A successful use of s216 and 217
Re Kayford Ltd 1975
Money held on a special deposit account for mail order customers trust asset not available to liquidator
Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd 1976
Property over which the vendor has validly reserved title pending payment trust asset not available to liquidator
What happens to trust assets on liquidation?
Must be returned to the beneficial owner
Once the liquidator has collected in the company’s assets, he can…
Distribute them among those entitled in accordance with the statutory order of priority
Statutory order of priority (6)
- fixed charges
- expenses of winding up
- preferential debts
- floating charges
- ordinary unsecured creditors
- members
