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Dissolution and winding up of a company (Administration (The company in…
Dissolution and winding up of a company
Methods
Voluntary members winding up or voluntary members liquidation
Voluntary creditors winding up or voluntary creditors liquidation
Compulsory liquidation
An administration order
Striking off
The just and equitable ground
Dissolution occurs when a company is removed from a jurisdiction's Companies Register. At this point it ceases to exist it has no capacity and the relationship between the company and its members is at an end
Voluntary members winding up or voluntary members liquidation
Used only for solvent companies when the company is wound up on a voluntary basis if the period (if any) fixed by the articles has expired or if the event (if any) occurs which is stated as dissolving the company in the constitution documentation comes about
Checklist - voluntary members liquidation
The board would
Hold a directors meeting to discuss the request form the beneficial owners if appropriate
Obtain the written consent of the beneficial owners
Hold a directors meeting and pass an ordinary resolution to call a GM
The company secretary would
Prepare the notice of the meeting
Send the notice of the meeting to all the shareholders of the company
Provide the minimum notice period as laid down in the constitution documentation
Include the special resolution to liquidate the company and to appoint a liquidator
At the GM the shareholders will vote to
Agree to liquidate the company
Appoint a liquidator
Set the remuneration of the liquidator
Declaration of solvency
Directors must issue a statement of solvency confirming the company is solvent and is able to discharge its liabilities and so repay any creditors in full
Failure to issue a declaration of solvency will result in preventing the voluntary liquidation of the company
Should the company subsequently be found to be insolvent the directors may be considered personally liable for the outstanding debts of the company because they have in effect prevented the creditors from taking any action against the company
The usually mentalities incurred are a fine and/or imprisonment and disqualification from acting as a director in the future for a period of up to 15 years
In some jurisdictions, such as Guernsey and the BVI, the company secretary would then forward to the Registrar or the court, the special resolution the was approved at a GM to wind up the company. At this stage the company must cease to carry on business except insofar as may be expedient for the beneficial winding up
Upon appointment of the liquidator, all powers of the directors cease
Voluntary creditors winding up or voluntary creditors liquidation
The company and/or the directors are unsure that the debts will be repaid in full and would agree to a scheme of repayment with the creditors without involving the court. It may be insolvent when all the assets have been sold off
After the GM and passing of the special resolution, the directors must also call a meeting of all the creditors of the company
The directors will lay the financial statements of the company at the creditors' meeting indicating the provision pay out that may be forthcoming and the creditors will be required to take a vote on whether or not they are happy to receive the reduced amount
A minimum 75% of the creditors must be in favour of any resolution presented for review, but the 75% majority relates to the extent of debt outstanding rather than the actual number of creditors. This is to prevent a large creditor from being disadvantaged and outvoted by numerous smaller creditors who are eager to get some money back and who may rank below the larger creditors in terms of priority
Should the creditors fail to agree with the proposal put to them by the directors, the winding up procedure will cease and the possible court action will ensue. If accepted, this will evidence the start of the next method of winding up, the compulsory winding up procedure
Compulsory liquidation
This method of winding up is usually the result of an action by a creditor against the company where the company has failed to pay its debts as they fell due, the demand having been sent to the register office address and due notice given, usually seven days.
In some circumstances the directors on behalf of the company and its shareholders may make the application
The court controls compulsory liquidation
The court may wind up a company if the company
Has by special resolution resolved that the company be wound up by compulsory winding up
Does not commence business within one year, beginning on the date of incorporation
Suspends business for a whole year
Members is reduced to fewer than one / two
Is unable to pay its debts
Has failed to hold an AGM if required
Has failed with a direction of the court to change its name
Has failed to give notice to the Registrar of the registered office address (or change of address)
The usual produce in many offshore jurisdictions to compulsorily liquidate a company is as follows
Any shareholder of the company or creditor of the company or any other interested third party may make an application for the compulsory winding up to the court
An order made by the court on the application by the shareholder or creditor or interested third party can operate for the benefit of the company's creditors in the same as if they had presented the application. The court will then decide whether or not to agree to the application after investigating whether or not the company is able to pay its debts
The making of a compulsory winding up order, the court will appoint a liquidator, usually nominated by the applicants
Administration
A procedure under the insolvency laws of a number of common law jurisdictions such as the UK
An administration order is a process designed to allow insolvent business to continue to trade while a debt restructuring plan is developed and presented to courts and creditors
Alternative to liquidation and by providing an out of court process, is considerably cheaper and simpler than liquidation and should be completed in a timelier manner
The process requires a licensed insolvency practitioner to act as the administrator appointed by the court
The company in administration will be run by the administrator on behalf of the creditors while the recovery options are considered. These options include
Re financing the business
Selling the business to new owners
Breaking it into separate elements so they can be sold off
Closing the remainder
An administrator can be appointed without petitioning the court by the holder of a floating charge by the company or by its directors. Other creditors must petition to court to appoint an administrator
Role of the administrator
Must act in the interests of all the creditors and attempt to rescue the company as a going concern
An officer of the court and an agent of the company ad is not personally liable for any contracts they make on behalf of the company
Has the power to do anything necessary or expedient for the management of the affairs, business and property of the company
Once an administration order is in place any form of legal or insolvency action is forbidden without the court's permission
Striking off
A company may be struck off the companies register if it
Has failed to delver to the Registrar an annual return/ validation form by a particular date
Is believed that a company is not carrying on business or operations
Has reasonable cause to believe that the company is being wound up and that no liquidation is acting or that the affairs of the company are fully wound up
Has failed to give notice of the situation of its registered office
The Registrar may
Give notice of a company being struck off the Companies Register by publishing the full name of the company in the local gazette
Give notice by recorded delivery to the liquidator of the company at his last known address
Send notice by recorded delivery to the company at its registered office address
Even though the company's name has been struck off the Register of Companies, all property and rights vested in it or held on trust for it (but not property held on trust for another person) will become bona vacantia. The liability if any of every office and shareholder of the company will continue and may be enforced accordingly
Restoration to the Register of Companies
When a company has been struck off the company register it is possible for it to be restored if the court is satisfied that
The company was at the time of its striking off carrying business or in operation
It would be just for the company to be restored to the Register
Any of the following may make an application for restoration
Former director, member, creditor or liquidator
Any person who had a contractual relationship with the company or who had a potential legal claim against the company
Any person who had an interest in land or property in which the company also had an interest, right or obligation
Any manager or trustee of the company's former employees' pension fund
Any other person who appears to the court to have an interest in the matter
Unlike CA2006 except in cases of personal injury, an application must be made within six years of the date of dissolution wheres in Guernsey for instance an application myst be made within 20 years. For the purposes of bringing a claim for damages or for personal injury, an application can be made for restoration at nay time but the court may not make an order for restoration where it appears that the claim would fail due to legal time limits place on it
Upon restoration, the company will be deemed to have continued to exist upon payment of all sums that would have been paid if it had not been dissolved and had at each year delivered its annual return / validation and together with an additional sum equivalent to the annual filing fee
In the majority of offshore jurisdictions, if a company's name is restored to the Register of Companies before the expiry of six years of its dissolution (or whatever other time limit has been approved in other jurisdictions), the company may be entitled to have any property returned that had been vested in the Crown upon dissolution and have its value as at the time of disposal
Just and equitable ground
Usually relied upon by a shareholder who is dissatisfied or at loggerheads with the directors or controlling shareholders over the management of the company
Something more than dissatisfaction is needed to make it just and equitable that the company should be wound up, because winding up what may be an otherwise healthy company is a drastic remedy
It must be shown that no other remedy is available
Each decision will rely on the specific facts of the case but orders have been made in the filling situations
Company was formed for illegal or fraudulent purposes
Main objects cannot or can longer be achieved
Management of the company is in complete deadlock
Understandings between the shareholders or directors have been unfairly breached by unlawful action
Directors delicately withheld information so that shareholders have no confidence in the company's management
Role of the liquidator
Manages the liquidation or winding up of the company and will usually advertise in the local gazette (warning to all third parties and creditors) of the impending winding up of the company requesting any claims to be forwarded to their office before the expiry of a set period with the date of the deadline clearly specified in the wording of the notice
Will realise all of the assets of the company, take their remuneration before paying off any creditors, other than secured creditors (as they hold the assets under their charge), discharge all the liability of the company in accordance with the ranking of priorities as set down within company law and will distribute any surplus to shareholders in accordance with their entitlement
As soon as the company's affairs are wound up the liquidator will prepare a set of accounts of the winding up, detailing the conduct of the liquidator and the disposal of the assets/property, call a general meeting of the shareholders at which the accounts will presented and an explanation given
After the meeting the liquidator must give notice to the Register of the holding of the meeting and the date the meeting was held
Powers
Bring or defend civil actions in the name of and on behalf of the company
Carry on the business of the company to the extent expedient for the beneficial winding up of the company
Make calls of capital against the shareholders as entered on the members register
Sign all receipts and other documents in the name of and on behalf of the company
Carry out any act authorised by the court
Re Peveril Gold Mines Ltd (1898)
Re Rica Gold Washing Co (1879)
Stonegate Securities Ltd v Gregory (1980)
Re Chamley Davies Ltd (No 2) (1990)
Kyrris v Oldham (2004)
Re Thomas Edward Brinsmead & Sons (1897)
Re Kitson & Co Ltd (1946)
Loch v John Blackwood Ltd (1924)