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MRL3701 - STUDY UNIT 22 - WINDING
UP COMPANIES Exam Questions with
correct answers.
WINDING UP MEANS - Answer essentially the procedure by which a company's assets are sold, its debts are paid, and any money left over is divided amongst the shareholders according to their rights. WINDING UP OF COMPANIES IS REGULATED BY THE FOLLOWING LEGISLATIVE PROVISIONS - Answer 1. Section 79 - 81 of the Companies Act 71. Winding up of solvent companies
- Chapter 14 of the Companies Act.
- Various provisions of the Insolvency Act. MODES OF WINDING UP AND ALTERNATIVES TO WINDING UP - Answer Company may be wound up in either of the two ways:
- By the court
- voluntarily WINDING UP BY THE COURT - Answer Sometimes called compulsory winding up is initiated by an application to court. Application is usually brought by a creditor in the case of an insolvent company and a shareholder in the case of a solvent company VOLUNTARY WINDING UP - Answer Initiated by a special resolution of the shareholders. The special resolution has to state whether the winding up is to be conducted by the creditors or by the shareholders, and a voluntary winding up by the company in the case of a solvent company. JURISDICTION OF COURT - Answer under S12(1) of the 1973 Act the court which had jurisdiction in regard to winding up was the High Court having jurisdiction over the area in which the company had its registered office or main place of business.
LOSS OF CAPITAL - Answer If 75% of its issued share capital has been lost or become useless for its business. INABILITY TO PAY DEBTS - Answer Unable to pay debt as described in S345. Cannot be relied upon if the company is solvent despite being unable to its debts. S345 - COMPANY DEEMED TO BE UNABLE TO PAY DEBTS IN THE FOLLOWING CASES - Answer 1. Creditor to whom company is indebted for at least R100 has left a demand for payment at company's registered office and the company has neglected for three weeks thereafter to pay, secure, compromise the claim to satisfaction of creditor.
- A warrant of execution issued on a judgement against the company has been returned by the sheriff with an endorsement that he did not find disposable property sufficient to satisfy the judgement, or that the disposable property he found did not, upon sale, satisfy the process.
- It is proved to the satisfaction of the court that the company is unable to pay its debts. Court must take into account the contingent and prospective liabilities of the company. DISSOLUTION OF EXTERNAL COMPANY - Answer If external company has been dissolved in the country in which it was incorporated or has ceased to carry on business, or is carrying on business only for the purpose of wining up its affairs. Relates only to insolvent external companies. JUST AND EQUITABLE - Answer That it is just and equitable that the company should be wound up. Courts have held that it is just and equitable to wind up a company in the following instances.
- Where main object for which the company was formed is not possible of being attained.
if the oppression can be removed with some other remedy for example by interdicting the wrongdoers from continuing their oppression. NO REASONABLE PROSPECT OF BUSINESS RESCUE SUCCEEDING - Answer May windup solvent company that is in business rescue if the practitioner concludes that there is no reasonable prospect of the company's being rescued TERMINATION OF BUSINESS RESCUE PROCEEDINGS - Answer may find up a solvent company that has commenced business rescue proceedings if the proceedings have ended in the manner contemplated or it appears just and equitable in the circumstances for the company to be wound up. DEADLOCK IN MANAGEMENT OR VOTING - Answer May wind up solvent company where either of the following situations exist:
- directors are deadlocked in the management of the company, shareholders are unable to break the deadlock and as a result of the deadlock
- irreparable injury to the company is resulting or may result
- the company's business cannot be conducted to the advantage of shareholders generally
- the shareholders are deadlock in voting power, and have failed for a period that includes at least two consecutive annual general meeting dates, to elect successors to directors whose terms have expired. FRAUD, ILLEGALITY OR MISAPPLICATION OF COMPANY ASSETS - Answer court may wind up a solvent company on the grounds that
- the directors, prescribed officers or other persons in control of the company are acting in a manner that is fraudulent or otherwise illegal
- the company's assets are being misapplied or wasted.
- the master
- a provisional or final judicial manager THE COMPANY ITSELF MAY BRING THE APPLICATION S346 (1)(a) - Answer Court held that the directors could validly resolve to apply as the word company does not necessarily mean the company in general meeting and the concept of managing the business of a company could include deciding that i should apply or its winding up. The 2008 Act provides: Directors are to manage the company's business and affairs and further states that the board may exercise all the powers and perform all the functions of the company except where the act or the company's memorandum provides otherwise. Submitted that requiring only a board decision is the preferable approach
ONE OR MORE CREDITORS - Answer including contingent or prospective creditors. Creditor's claims need not equal or exceed any particular amount as it must in an application for compulsory sequestration. A contingent or prospective creditor is one whit a claim against the company which will only become enforceable in the future. Does not include loan of a preferent shareholder. ONE OR MORE OF ITS MEMBERS - Answer Or by person appointed as executor, trustee, liquidator, curator, or guardian in respect of a member who is decease, insolvent or under a disability. Membe rmay not apply unless he has been registered as such in the reigster of members for at least six months prior to the date of the application or unless the shares he holds have eveloped upon him through the death of a former holder.
Cannot be founded on the inability of the company to pay its debts. Application for winding up order on this ground can only be brought by the company itself (acting pursuant to a special, or perhaps a directors resolution) on one or more creditors of the company, the Master or a provisional or final judicial manager ANY OR ALL OF THE ABOVE PARTIES - Answer Application may be brought jointly by some or all of the parties mentioned above company, creditors and members THE MASTER - Answer May apply to convert a voluntary winding up into a winding up by the court. Only instance where Master may apply for a winding up of a company.
Reason why is usually to make available the procedure for examination and enquiry under ss417 and 418. Most probable ground for winding up on which the Master will base his application is the inability of the company to pay its debts A PROVISIONAL OR FINAL JUDICIAL MANAGER - Answer May bring application where the provisional order of judicial management is discharged. this provision does not preclude a creditor from applying for the winding up of a company under judicial management. Final judicial manager is obliged to apply for winding up if it appears to him that the company he is managing will not become a successful concern. Although judicial management provisions have been repealed this provision remains relevant to judicial managers appointed under the 173 act.
been a shareholder, or he and the party from whom he acquired the shares have been shareholders, continuously for at least six months immediately before the date of the application. STEPS PRIOR TO APPLICATION - Answer Section 346 (3) - (4A) Requirements
- Security for costs
- Masters report
- Notification of certain interested parties SECURITY FOR COSTS - Answer Must give sufficient security for the payment of all fees and charges necessary for the prosecution of all winding up proceedings and of all costs of administering the company in liquidation until a provisional liquidator has been appointed or if none is appointed of all fees and charges necessary for the discharge of the company from the winding up.
Must be accompanied by certificate issued by the Master not more than 10 days before the date of application to the effect that this security has been given. MASTERS REPORT - Answer Before presenting his application to court applicant must serve a copy on Master who may report to the court any facts which he has ascertained which may justify postponing or dismissing the application. NOTIFICATION OF CERTAIN INTERESTED PARTIES - Answer 1. Every registered trade union that represents any of the company employees
- the employees themselves by affixing a copy of the notice to any notice board accessible by the applicant and the employees inside the company premises 3.SARS
- company, unless the application is made by the company, or unless the court, in its discretion, dispenses with the furnishing of a copy
Act does not oblige court to make a provisional order and it may, if it deems it appropriate make a final order immediately, for instance where the issues have been fully ventilated and nothing has been suggested or put forward to indicate that further relevant facts would be forthcoming if a rule nisi were issued. Courts power to grant an application for winding up is discretionary, irrespective of the ground on which it is sought. Were court is face with the choice between business rescue and winding up the former must be preferred. Winding up is more appropriate than business rescue when dispositions made by the company may need to be set aside or where the company is involved in legal disputes, particularly pertaining to contracts such as lease of immovable property,that could simply be terminated by a liquidator, where there is a deadlock between the shareholders, or where there is a lack of up to date financial information about the company.
Court may not refuse a winding up order merely because the company has no assets or because its assets have been mortgaged to their full value. Where the company disputes allegations of f VOLUNTARY WINDING UP - Answer An insolvent company may be wound up voluntarily if it has adopted a special resolution to that effect and that resolution has been registered by the Commission in accordance with the formalities laid down in s Special resolution to wind up company must state whether the winding up is a members' voluntary winding up or a creditors' voluntary winding up. Solvent company may be wound up voluntarily if it has adopted a special resolution to this effect and filed it with the Commission.
