Company Winding UP

The winding up or liquidation of a company is the process by which a company's assets are
collected and sold in order to pay its debts. Any monies remaining after all debt, expenses
and costs have been paid off are distributed amongst the shareholders of the company.
When the conduct of the winding up has been completed, the company is formally
dissolved and it ceases to exist. Broadly, a company can be wound up in one of two ways.
First, the court can compulsorily wind up a company. Secondly, the shareholders or the
creditors of the company can themselves apply to wind up the company in proceedings
knows as “voluntary winding up”.

Compulsory Winding Up

There are certain grounds upon which a company can be wound up compulsorily. A
company's inability to pay its debts is a common ground on which an originating
summons for compulsory winding up is presented. A company is deemed to be unable to
pay its debts if:

 A creditor having a claim against the company for more than S$10,000.00 has
served a written demand requiring payment, and the debt is not paid within 3 weeks;
 Execution of a judgment obtained by a creditor against a company remains
unsatisfied in part or in whole; or
 It is proved to the court's satisfaction that the company is unable to pay its debts.

The following parties can file an originating summons to wind up a company:

 The company itself

 A creditor of the company
 A shareholder of the company
 A liquidator
 A judicial manager or
 Various ministers on grounds specified under the law 

 
WINDING UP BY THE COURT:
   
A company may be wound up by the court in following situations. Here, the court means
"High Court".
      
If the company itself, has passed a special resolution in the general meeting to wound
  up its affairs. Special resolution means, resolution passed by three-fourth (3/4") of the  
members present.
      
If there is a default, in holding the statutory meeting or in delivering the statutory report
to the Registrar.A company which is limited by shares, and a company limited by
guarantee having share capital, is required to hold a " Statutory meeting" of its
   
members, within six months, and after one month, from the date of commencement of
it's business. A statutory report of the meeting so held shall also be forwarded to the
registrar. [Sec 165 (1) & (5)]
      
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 If the company fails to commence its business within one year from the date of it's
incorporation, or suspends its business for a whole year.A company limited by shares,
   
has to obtain a "certificate of commencement" of business from the registrar. Unless it
obtains such certificate, it cannot carry on its business operation.
      
If the number of members, in a public company is reduced to less than seven, and in
case of private company less than [Link] statutory requirement of minimum number of
   
members in a public company is seven, and in case of private company, it is two (sec
12)
      
If the company is unable to pay its debits; where the financial position of the company
  is, such, that it has more liabilities than assets, and after disposing off the assets, it is  
still unable to extinguish it's liabilities, it means that company is unable to pay it's debts.
      
If the court, itself is of the opinion that the company should be wound up.
  The court may form such an opinion, if it comes to the knowledge of court that, the  
company is mismanaged, or financially unsound, or carrying an illegal operations etc.
      
    
 RELEVANT POINTS  
 A. WHO CAN APPLY TO COURT, FOR WINDING UP PETITION? (SEC 439)  
 Following persons can apply to the court, for petition for winding up  
      
  The company itself  
  The creditor  
  Any Contributory  
  Registrar  
  Any person authorised by central govt, in case of oppression or mismanagement (397)  
      
 [Link] ORDERS, THE COURT MAY PASS? (SEC 443)  
 The court may pass any one of the following orders on hearing the winding up petition.  
      
  Dismiss it, with or without costs  
  Make any interim order, as it thinks fit, or  
  Pass an order for winding up of the company with or without costs.  
    
 Consequences of court passing an order for winding up:  
If the court is satisfied, that sufficient reasons exist in the petition for winding up, then it will
 pass a winding up order. Once the winding up order is passed, following consequences  
follow:
      
Court will send notice to an official liquidator, to take change of the company. He shall
   
carry out the process of winding up, ( sec. 444)
The winding up order, shall be applicable on all the creditors and contributories,
   
whether they have filed the winding up petition or not.

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   The official liquidator is appointed by central Government ( sec. 448)  
The company shall relevant particulars, relating to, assets, cash in hand, bank balance,
   
liabilities, particulars of creditors etc, to the official liquidator. ( sec. 454)
The official liquidator shall within six months, from the date of winding up order, submit
   
a preliminary report to the court regarding
   [Link] of Capital  
   [Link] and negotiable securities  
   [Link]  
   [Link] and immovable properties  
   [Link] calls, and  
   [Link] opinion, whether further inquiry is required or not ( 455)  
The Central Govt. shall keep a cognizance over the functioning of official liquidator, and
   
may require him to answer any inquiry. (463)
    
 C. STAY ORDER  
Where, the court has passed a winding up order, it may stay the proceedings of winding
   
up, on an application filed by official liquidator, or creditor or any contributory. (466)
   
 D. DISSOLUTION OF COMPANY (481)  
 Finally the court will order for dissolution of the company, when:  
   [Link] affairs of the company are completely wound up, or  
   [Link] official liquidator is unable to carry on the winding up procedure for want of funds.  
      
 E. APPEAL: 483  
An appeal from the decision of court will lie before that court, before whom, appeals lie
   
from any order or decision of the former court in cases within its ordinary jurisdiction.

Grounds for Compulsory Winding Up or Winding up by the Tribunal

 If the company has, by a Special Resolution, resolved that the company be wound
up by the Tribunal.
 If default is made in delivering the statutory report to the Registrar or in holding the
statutory meeting. A petition on this ground may be filed by the Registrar or a contributory
before the expiry of 14 days after the last day on which the meeting ought to have been
held. The Tribunal may instead of winding up, order the holding of statutory meeting or the
delivery of statutory report.
 If the company fails to commence its business within one year of its incorporation, or
suspends its business for a whole year. The winding up on this ground is ordered only if
there is no intention to carry on the business and the Tribunal's power in this situation is
discretionary.
 If the number of members is reduced below the statutory minimum i.e. below seven
in case of a public company and two in the case of a private company.
 If the company is unable to pay its debts.
 If the tribunal is of the opinion that it is just and equitable that the company should be
wound up.

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 Tribunal may inquire into the revival and rehabilitation of sick units. It its revival is
unlikely, the tribunal can order its winding up.
 If the company has made a default in filing with the Registrar its balance sheet and
profit and loss account or annual return for any five consecutive financial years
 If the company has acted against the interests of the sovereignty and integrity of
India, the security of the State, friendly relations with foreign States, public order, decency
or morality.

The petition for winding up to the Tribunal may be made by :-

 The company, in case of passing a special resolution for winding up.

 A creditor, in case of a company's inability to pay debts.
 A contributory or contributories, in case of a failure to hold a statutory meeting or to
file a statutory report or in case of reduction of members below the statutory minimum.
 The Registrar, on any ground provided prior approval of the Central Government has
been obtained.
 A person authorised by the Central Government, in case of investigation into the
business of the company where it appears from the report of the inspector that the affairs of
the company have been conducted with intent to defraud its creditors, members or any
other person.
 The Central or State Government, if the company has acted against the sovereignty,
integrity or security of India or against public order, decency, morality, etc.

Voluntary Winding Up of a Registered Company

When a company is wound up by the members or the creditors without the intervention of
Tribunal, it is called as voluntary winding up. It may take place by:-

 By passing an ordinary resolution in the general meeting if :- (i) the period fixed for
the duration of the company by the articles has expired; or (ii) some event on the happening
of which company is to be dissolved, has happened.

 By passing a special resolution to wind up voluntarily for any reason whatsoever.

Within 14 days of passing the resolution, whether ordinary or special, it must be advertised
in the Official Gazette and also in some important newspaper circulating in the district of the
registered office of the company.

The Companies Act (Section 484) provides for two methods for voluntary winding up:-

Members' voluntary winding up

It is possible in the case of solvent companies which are capable of paying their liabilities in
full. There are two conditions for such winding up:-

 A declaration of solvency must be made by a majority of directors, or all of them if

they are two in number. It will state that the company will be able to pay its debts in full in a
specified period not exceeding three years from commencement of winding up. It shall be
made five weeks preceding the date of resolution for winding up and filed with the
Registrar. It shall be accompanied by a copy of the report of auditors on Profit & Loss
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 Account and Balance Sheet, and also a statement of assets and liabilities upto the latest
practicable date; and
 Shareholders must pass an ordinary or special resolution for winding up of the
company.

The provisions applicable to members' voluntary winding up are as follows:-

 Appointment of liquidator and fixation of his remuneration by the General Meeting.

 Cessation of Board's power on appointment of liquidator except so far as may have
been sanctioned by the General Meeting, or the liquidator.
 Filling up of vacancy caused by death, resignation or otherwise in the office of
liquidator by the general meeting subject to an arrangement with the creditors.
 Sending the notice of appointment of liquidator to the Registrar.
 Power of liquidator to accept shares or like interest as a consideration for the sale of
business of the company provided special resolution has been passed to this effect.
 Duty of liquidator to call creditors' meeting in case of insolvency of the company and
place a statement of assets and liabilities before them.
 Liquidator's duty to convene a General Meeting at the end of each year.
 Liquidator's duty to make an account of winding up and lay the same before the final
meeting.

Creditor's voluntary winding up

It is possible in the case of insolvent companies. It requires the holding of meetings of

creditors besides those of the members right from the beginning of the process of voluntary
winding up. It is the creditors who get the right to appoint liquidator and hence, the winding
up proceedings are dominated by the creditors.

The provisions applicable to creditors' voluntary winding up are as follows:-

 The Board of Directors shall convene a meeting of creditors on the same day or the
next day after the meeting at which winding up resolution is to be proposed. Notice of
meeting shall be sent by post to the creditors simultaneously while sending notice to
members. It shall also be advertised in the Official Gazette and also in two newspapers
circulating in the place of registered office.

 A statement of position of the company and a list of creditors along with list of their
claims shall be placed before the meeting of creditors.
 A copy of resolution passed at creditors' meeting shall be filed with Registrar within
30 days of its passing.
 It shall be done at respective meetings of members and creditors. In case of
difference, the nominee of creditors shall be the liquidator.
 A five-member Committee of Inspection is appointed by creditors to supervise the
work of liquidator.
 Fixation of remuneration of liquidator by creditors or committee of inspection.
 Cessation of board's powers on appointment of liquidator.
 As soon as the affairs of the company are wound up, the liquidator shall call a final
meeting of the company as well as that of the creditors through an advertisement in local
newspapers as well as in the Official Gazette at least one month before the meeting and

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 place the accounts before it. Within one week of meeting, liquidator shall send to Registrar
a copy of accounts and a return of resolutions.

Winding up an Unregistered Company

According to the Companies Act, an unregistered company includes any partnership,

association, or company consisting of more than seven persons at the time when petition
for winding up is presented. But it will not cover the following:-

 A railway company incorporated by an Act of Parliament or other Indian law or any

Act of the British Parliament;
 A company registered under the Companies Act, 1956;
 A company registered under any previous company laws.
 An illegal association formed against the provisions of the Act.

However, a foreign company carrying on business in India can be wound up as an

unregistered company even if it has been dissolved or has ceased to exist under the laws
of the country of its incorporation.

The provisions relating to winding up of a unregistered company:-

Such a company can be wound up by the Tribunal but never voluntarily.

 Circumstances in which unregistered company may be wound up are as

follows:- 
 If the company has been dissolved or has ceased to carry on business or is
carrying on business only for the purpose of winding up its affairs.
 If the company is unable to pay its debts.
 If the Tribunal regards it as just and equitable to wind up the company.

 Contributory means a person who is liable to contribute to the assets of a company

in the event of its being wound up. Every person shall be considered a contributory if he is
liable to pay any of the following amounts:- 

 Any debt or liability of the company;

 Any sum for adjustment of rights of members among themselves;
 Any cost, charges and expenses of winding up;

 On the making of winding up order, any legal proceeding can be filed only
with the leave of the Tribunal.

WINDING UP FIDUCIARIES –CONSIDERING THE CLIENTS

Jersey’s Royal Court has recently demonstrated the extent to which it is prepared to
exercise its discretion in insolvency proceedings in order to help the underlying clients of a
failing financial services business. On 6 October 2009 the Jersey Court ordered the winding
up of Centurion Management Services Limited (“Centurion”) pursuant to Article 155 of the
Companies (Jersey) Law 1991 (“the Companies Law”) on the grounds that it was just and
equitable to do so.

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Centurion was licensed to carry on trust company business, which in the usual way
included the management and administration of third party assets held in company and
trust structures. But Centurion was insolvent on both the balance sheet and cash flow tests.
Centurion had been the subject of close regulatory attention. The Jersey Financial Services
Commission (“the JFSC”) had identified a wide variety of failings on the part of Centurion,
both in terms of compliance with relevant codes of practice and Jersey’s primary and
secondary legislation. It had identified apparent misuse by Centurion’s former directors of
its client account and an ongoing failure to comply with the regulatory capital requirement
as determined by the adjusted net liquid asset calculation.
The JFSC had previously required the appointment of the applicants as directors of
Centurion in order to bring Centurion’s corporate governance, in terms of span of control, in
line with the relevant code of practice. It had also issued directions requiring the
appointment of BakerPlatt to act as co-signatories and more recently requiring the
attendance of a representative from BakerPlatt at all board and committee meetings.
Centurion’s board of directors, in conjunction with the JFSC, recognised that the best way
forward was to sell the viable part of its book of business and so entered into a sale and
revenue sharing agreement with Trustcorp, a third party trust company business, by which
Trustcorp would acquire those client entities that met its take-on procedures and standards
in return for a share of the revenue received following the take-on of those client entities. In
the circumstances, there was no prospect of Centurion trading out of its current situation.
The Court was asked by Centurion’s directors to order the winding up of Centurion on just
and equitable grounds. This remedy, provided for under the Companies Law, is one which
can be sought by, among others, a director or shareholder of a Jersey company, but not by
its creditors. It is a remedy which has been used flexibly by the courts in England and
Jersey, particularly where no other procedure for the winding up of a company has seemed
appropriate. It gives the Court supervisory control over the administration of the winding up
and any liquidator so appointed is directly accountable to the Court. It has been used in the
past where speed of action has been essential, where there is deadlock and there has been
a complete breakdown of the relationship between shareholders such as in small
companies which have many of the characteristics of partnerships, and to facilitate an
investigation into a company’s affairs.
The Court also had to consider the potential for a creditors’ winding up under the Company
Law. Confusingly, a creditors’ winding up cannot be initiated by a creditor. However, one
advantage of a creditors’ winding up over a just and equitable winding up is that it does not
involve a court process, and so the initial stages of effecting the winding up will often be
somewhat cheaper. The Court therefore had to consider whether there was any justification
for ordering a winding up of Centurion on just and equitable grounds. It also had to consider
whether or not désastre, a common Jersey bankruptcy procedure, would be appropriate.
Désastre is a remedy which is available to creditors, and is now set out in statute (the
Bankruptcy (Désastre) (Jersey) Law 1990). In a désastre, the bankruptcy is administered by
the Viscount, who is an executive officer of the Jersey Court.

A full list of Partners, Associates and Consultants can be viewed on our website.
In this case, the Court agreed that a just and equitable winding up was the most appropriate
option, for the following reasons. Centurion needed to carry on trading for some time after

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the commencement of the winding up whilst it transferred its client entities to Trustcorp and
exited other client relationships. Any liquidator appointed would therefore continue to incur
liabilities in so doing. Carrying on the business in that way would require a flexibility of
approach which is not expressly provided for in a creditors’ winding up. A creditors’ winding
up would not necessarily allow the interests of Centurion’s clients to be taken into account.
The Companies Law provides that in a creditors’ winding up the Company must cease to
carry on its business except so far as may be required for its beneficial winding up. This
may limit the extent to which a liquidator would be able to take into account the interests of
Centurion’s clients. Centurion’s clients would be likely to have more confidence in a just and
equitable winding up than a creditors’ winding up because the liquidator would be directly
accountable to the Court. This would be potentially financially beneficial to the creditors
because the more clients who agreed to transfer to Trustcorp, the more money there would
be for creditors. Further, if a client did not transfer to Trustcorp, additional liabilities would
be incurred by Centurion in exiting those relationships.
The choice of liquidator was important. Mr Shorrock had detailed knowledge of the matters
in question but was also independent. In a creditors’ winding up the choice of liquidator lay
with the creditors and there was a real possibility of a conflict between the clients of
Centurion and its creditors, which a liquidation committee appointed pursuant to the
Companies Law would not be adequate to deal with. A liquidator needed urgently to be
appointed in order to protect the interests of clients and to meet the JFSC’s regulatory
requirements. As regards a désastre, the Viscount was in no better position to deal with the
winding up of Centurion than a liquidator appointed on just and equitable grounds. Further,
the time and resources involved in acquiring a detailed knowledge of the affairs of
Centurion and the potential duplication of costs did not make désastre the most attractive
option in this case.

COMMENT

The core element of this decision is the need for Centurion to continue its regulated
business whilst it is being run down. To do so, it may be appropriate for the liquidator to
take steps which, whilst in the best interests of the underlying clients, may not necessarily
be in the best interests of the creditors. If the Court had ordered a creditors’ winding up,
then arguably the liquidator would not have been able to have done so.
It is a welcome addition to the list of circumstances where ‘pulling down the shutters’ is not
an option. It reinforces the Jersey Court’s flexibility of approach in relation to insolvency
proceedings. However, it also exposes a potential deficiency in Jersey’s armoury of
insolvency legislation – that of the ability to enter into an administration, whether with a view
to ‘rebirth’ or to closure, as in the case of Centurion.
The case potentially offers a role model in terms of a board of directors working with the
regulator, the prospective liquidator, the creditors and importantly a purchaser of the client
entities who is prepared to be dynamic and flexible in order to wind down the financial
services business in the best interests of all concerned.
Finally, it would be fair to say that the decision appears to resonate with recent
developments in English Company Law, specifically the theme of directors acting in the
interests of a wider body of stakeholders. Although the application dealt with the

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appointment of a liquidator, as a matter of policy, although not explicitly stated, it would
appear that the Court recognised Jersey’s role as an international finance centre and that
client, as well as creditor interests, needed protecting.

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