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WINDING UP

The process by which a company is dissolved is known as winding up or liquidation.

The companys business is closed down, it


s asset s are sold off, the creditors are paid and t he balance of t he asset s is distributed to the members

Two types of winding up


1. by the court 2. voluntary, by member and creditors

A voluntary winding up may be either a

members voluntary winding up or a creditor, whether a declaration of solvency in accordance with sec 4(1) CA 1965.

By Court: involuntary winding up / compulsory winding up


Compulsory winding up is initiated by
application to the court by any of the persons listed in sec 217(1) CA 1965. The applicant must establish one of the grounds for winding up contained in sec 218(1) CA 1965 (inability to pay debts).

Who may apply under sec 217 CA 1965:


1. the company 2. the creditors 3. Contributory or representative of a deceased

contributory 4. Liquidator appointed in a voluntary winding up 5. the minister 6. The central bank, i.e. finance companies Liquidators

Powers of liquidators
to carry out the business of t he company so far is

necessary for the beneficial of winding up of that business. to pay any class of creditors in full to make compromises with credit or s and distributor s with respect to their claims and liabilities to bring or defend legal proceedings in t he name of the company and to appoint a solicitor to assist to sell or otherwise dispose of all or any part of the companys property t o sign document s on t he companys behalf and use it as common seal f or t hat purpose

Cont;
to appoint an agent to do any business that a liquidator

is unable to do or that it is unreasonable t o expect the liquidator to do in per son t o do all such other things as necessary for winding up t he af f air s of t he company and distributing its assets. I f liquidators breach t heir duties the court is given power to remedy these breaches under a different provisions. Sec 277 CA 1965 deals exclusively wit h the supervision of the liquidators.

Effects of winding up
1. On creditors A compulsory winding up does not

commence on the date the court makes a winding up order but under sec 219(2) a compulsory winding up is deemed to commence at the time of filing the application for winding up.

A voluntary winding up commences at the


time of passing of the resolution for voluntary winding up under sec 219(1) and 255(6) CA 1965.

On the Company
A company continues to exist as a separate
entity but it is not allowed to operate in doing business except f or the purpose of winding up. The companys property continues to belong to it. All document s issued or signed on it s behalf must car r y t he words in liquidation after it s name. In both the voluntary and involuntary winding up the directors lose their power t o manage t he companys affair s. The companys affairs are control by the liquidators.

On the companys employees


I n t he case of compulsory winding up

publication of the winding up order serves as a notice of dismissal to the companys employees.

Dissolution of the Company


The law has made special provisions which apply during the

liquidation so that those who have invested in or had dealings with the company can be protected. 1. Ouster of Directors and Management. This is per haps t he most important provision of all. On winding up, t he boar d of directors becomes functus officio; the liquidator assumes its powers: 216(4). This is because it is t hose in control who have the power t o cause harm and their removal is t therefore essential before any remedial act ion can be taken. This removal occurs automatically on liquidation.

2. Investigation of Officers' Conduct.


The Act makes provisions enabling t he
conduct of directors and manager t o be investigated. The official receiver may make a report to the court on whether further inquiry into the conduct of the company' s business is desirable or whether there has been any fraud being committed

3. Civil Remedies Against Officers.


The Act also imposes certain civil liabilities on

officer s of companies in liquidation. This enables the court to impose personal responsibility on those who were knowingly parties t o t he continuation of t he company' s business wit h intent t o defraud creditors or for other fraudulent purposes. However, actual dishonesty has to be proven:

4. Liquidators.
Once the liquidator is appointed, the power s of t he
directors cease: 261(4). The liquidator is the fiduciary agent of the company: The property of the company does not vest in him but the company continues to exist. The liquidators make contracts on behalf of the company: Although a liquidator is normally both personally liable on his contracts, he has statutory duties: 277(2). He has a fiduciary relationship with the company and creditors as a body. He has t o give account s [sect ion 281] and make good defaults [section 282].