Winding Up (Part 2)

LECTURER: ALDITH HYLTON

  In a voluntary winding up, the decision
to wind up is taken by the members in
the General Meeting.
 A company may be wound up
voluntarily where any of two
circumstances exist:
1. When a provision in the articles
Voluntary providing dissolution of the company
on the happening of a particular event
Winding Up S. or at a particular time has been
272 satisfied and the company in general
meeting has passed a resolution that
the company be wound up voluntarily-
S.272 (1) (a)
2. If the company resolves by special
resolution that the company be wound
up voluntarily- S. 272 (1) (b).

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  N.B.- In each of these two
instances, a resolution of the
company in general meeting is
required, whether by ordinary
resolution as in the first case or
by special resolution as in the
second case.
Voluntary  S. 273 (1) requires that once any
Winding Up S. such resolution is passed, the
company must within fourteen days
272 thereof give notice of the resolution
by advertisement in the Gazette and
in writing to the Registrar.
 Once the resolution to wind up is
passed, the company must cease to
do business except as is necessary
for a successful winding up - S. 275.

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  A voluntary winding up may be either
a Members’ Voluntary Winding Up or
a Creditors’ Voluntary Winding Up.
 For there to be a members’ voluntary
winding up, the company must be
solvent and the majority of the
Members’ directors at a board meeting must
make a statutory declaration to the
Voluntary effect that they, having made a full
Winding Up enquiry into the affairs of the
company, are satisfied that the
company will be able to pay its debts
within a period set out in the
declaration but not exceeding 12
months from the passing of the
resolution to wind up- S. 277 (1).

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 The statutory declaration is referred to as the
‘Declaration of Solvency’.
The Declaration of Solvency must be filed
with the Registrar.
However, pursuant to S. 277(4), a creditors’
voluntary winding up is only applicable under
Members’ the Companies Act where no declaration of
solvency has been made and delivered to the
Voluntary Registrar in accordance with S. 277 (1).
Winding Up In a members’ voluntary winding up, the
members more or less control the winding up
process.
Pursuant to section 279, the company in
general meeting must appoint a trustee(s) for
winding up the company and fix his/her
remuneration.

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  No committee of inspection is
appointed.
 However, if in the course of the
winding up, the trustee is at any time
of the opinion that the company will
not be able to pay its debts in full
within the period specified in the
‘Director’s Declaration of Solvency’,
Members’ the trustee must apply to the
Supervisor for an assignment in
Voluntary accordance with the Insolvency Act
Winding Up and thereafter proceed in accordance
with the provisions of the Insolvency
Act- S. 282 (1).
 If the trustee fails to comply with S.
282 (1), he shall be liable to pay fine
not exceeding $50,000 or to serve a
term of imprisonment not exceeding
6 months or to both such fine and
imprisonment – S. 282 (2).
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  In accordance with S. 299, the trustee
in a voluntary winding up must
Members’ publish a notice of his appointment in
the Gazette and in a Jamaican daily
Voluntary newspaper and send a copy of the
Winding Up notice to the Registrar.

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  The commencement date of a
voluntary winding up is the date of the
passing of the resolution for voluntary
winding up.
 As of the date of commencement, the
company must cease to carry on
Consequences Of business, except so far as is required
for the beneficial winding up - S. 275.
A Voluntary
 No transfer of shares can be made
Winding Up without the sanction of the trustees,
and any alteration in the status of a
member is void – S. 276.
 A transfer of debentures can however
be made.

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  On the appointment of a trustee, the
powers of the directors cease unless
sanctioned by the trustee.
 A voluntary winding up does not
necessarily mean all employees are
Consequences Of discharged.
A Voluntary  However, after the commencement of
Winding Up a voluntary winding up, the trustee
may continue with the employment of
the company’s employees until the
company is fully wound up.

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  The winding up of a company does not
bar the right of a creditor or
contributory [member] to have the
company wound up by the Court - S.
303
Consequences Of  The Court will have regard to the
wishes of the creditors, and if the
A majority favour the continuance of the
Voluntary voluntary winding up, an order for the
Winding Up company to be wound up by the court
will not be made.
 If the applicant can show special
circumstances and the court thinks it is
in the best interest of the creditors to
so order, it will do so.

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  Where a resolution for a voluntary
winding up has been passed, the Court
Winding Up has the power pursuant to S. 304, to
order that the winding up shall
Subject To The continue “Subject to the Supervision of
Supervision of the Court”.

The Court  Pursuant to S. 307, on the making of

the order, the Court may appoint an
additional trustee.

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  Generally, an order for ‘winding up
subject to the supervision of the court’
Winding Up is deemed for all purposes to be an
Subject To The order to wind up by the Court.

Supervision  However, many provisions applicable

to compulsory winding up do not
Of The Court apply, making it resemble a voluntary
winding up in many ways.

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  S. 308 - Where an order is made for a
“Winding Up Subject to Supervision of
the Court”, the trustee may, subject to
any restrictions imposed by the Court,
exercise all powers, without the
sanction or intervention of the Court,
Winding Up in the same manner as if the company
were being wound up altogether
Subject To The voluntarily; provided that the powers
specified in paragraphs (d), (e) and (f)
Supervision Of of S. 241(1) shall not be exercised by
The Court the trustee except with the sanction of
the Court or the committee of
inspection or if there is no committee,
a meeting of the creditors.

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  S. 241(1) (d) (e) and (f) deal with:
Winding Up
 payments to creditors;
Subject To The
 making arrangements with creditors,
Supervision Of and;
The Court  such like matters.

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  Once the trustee concludes his
administration, the company is
dissolved.
 In a ‘compulsory winding up’ or
‘winding up by the court’, section 269
provides that when the affairs of the
Dissolution company have been completely wound
Of The up, the Court on the application of the
trustee, shall make an order that the
Company company be dissolved and the
company shall be dissolved
accordingly from the date of the order.
 The order must within fourteen days of
its date be forwarded to the Registrar
who enters it in her books.

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  In a members’ voluntary winding up,
section 284 provides that as soon as
the affairs of the company are fully
Dissolution – wound up, the trustee must:
make an account of the winding up,
Members’ 1)
showing how it has been conducted
Voluntary and the company’s property disposed
of, and
Winding Up
2) call a general meeting for the purpose
of laying this account before it and
giving any explanation required.

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 3) Within one week after the meeting, a
copy of the account and a return of the
Dissolution – holding of the meeting and of its date must
Members’ be sent by the trustee to the Registrar.

Voluntary 4) The Registrar must register these

documents and on the expiration of three
Winding Up months from the registration of the return,
the company is deemed to be dissolved.

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  In a ‘winding up under the supervision
of the court’, section 269 applies, and
therefore the trustee will make an
application to the Court for an order
Winding Up – that the company be dissolved from
the date of the order.
Supervision Of  The company will therefore be
The Court dissolved.
 Within 14 days of the date of the order,
the trustee will forward the order to the
Registrar who will register same .

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  It is to be noted that pursuant to section
336, a company which has been
dissolved, may be resuscitated within
two years of the dissolution by an order
of the Court.
 The application for such an order may
be made by the trustee or any person
Resuscitation who appears to the Court to have an
interest.
Of The  The order has the effect of enabling the
Company company to sue and to be sued and of
divesting any property from the Crown
(to be discussed below).
 The person who applies to the Court for
resuscitation of the company, is obliged
to deliver a copy of the order to the
Registrar for registration within seven
days of it being made - S. 336 (2)

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  Note that S. 337, sets out the
procedure for the dissolution of
companies by striking off by the
Registrar, which may be utilised by
her where a company is being wound
up.
Striking Off  S. 337 (4) provides that if the Registrar
By The has reasonable cause to believe either
that no trustee is acting, or that the
Registrar affairs of the company are fully wound
up, and the returns required to be made
by the trustee have not been made for
a period of six months, the Registrar
can take steps to strike the company
off the register.

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  In addition, where the Registrar has
reasonable cause to believe that a
company is not carrying on business,
or is not in operation, she may send the
company by post, a letter inquiring
whether the company is carrying on
business or in operation- S. 337 (1).
Striking Off  If the Registrar receives no response to
the letter within one month of sending
By The the letter, she shall within 14 days after
the expiration of the one month, send a
Registrar registered letter referring to the first
letter and pointing out if no answer is
received within one month from the
date of the second letter, a notice will
be published in the Gazette and in a
daily newspaper with a view to
striking the name of the company off
the register- (S. 337 (2).

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  If the Registrar either receives an
answer that the company is not in
operation or receives no answer within
one month of the date of the second
letter, she may publish in the Gazette
Striking Off and in a daily newspaper and send to
the company by post a notice that at
By The the expiration of three months from
Registrar the date of the notice, the company
will be struck off the register and will
be dissolved, unless cause is shown to
the contrary- S. 337 (3).

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  Where a company is dissolved, all
property and rights of the company
immediately before dissolution are
The deemed to be ‘bona vacantia’ and
Company’s accordingly belong to the Crown
unless the Crown disclaims title to
Property After them- (S. 338 and S. 339).
Winding Up  ‘Bona Vacantia’ – Goods without an
apparent owner in which no one
claims, belongs to the Crown.

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  On appointment, the trustee assumes
the functions of the directors who
generally become ‘functus officio’ (the
directors no longer have a legal
function as their functions have been
completed), and like the directors, may
be described as a fiduciary agent of the
company.
 The property of the company does not
The Trustee vest in the trustee unless he has a
vesting order made and when he enters
into a contract, he does so on the
company’s behalf and is not normally
personally liable on it.
 The trustee’s primary task is to gather
and distribute the assets of the
company according to the law with a
view to winding up all the company's
affairs.
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  The trustee has special statutory duties
and is in a fiduciary relationship to
both the company and the creditors as
a body, though not to individual
creditors.
 If the trustee defaults in these duties,
he may be sued or have a misfeasance
summons taken out against him under
The Trustee section 323 (misfeasance is the
improper performance of a lawful act).
 If the trustee is appointed in a
‘compulsory winding up', he is an
officer of the Court but this is not the
case if he is appointed in a members’
or creditors’ voluntary winding up.

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  Depending on the type of winding up,
the trustee must report regularly to the
respective interested parties i.e., -
 the Court
the Members,
The Trustee 

 the Committee of Inspection, and

 the Creditors, and
 call meetings for the purpose where
appropriate.

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  It has been said that a ‘compulsory
winding’ up involves more than a mere
realisation of the assets and
distribution of proceeds, and that the
trustee as an officer of the Court, has
public responsibility to investigate past
activities connected to the company
and in appropriate cases, to initiate
The Trustee further proceedings, whether civil or
criminal, as the circumstances may
dictate.
 It is his duty to discover not only
breaches of the Companies Act but
also conduct falling short of the
requisite standards of commercial
morality.

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  On winding up generally, the board of
directors becomes ‘functus officio’ and
its powers are assumed by the trustee.
As those in control are the most able
to cause injury, it is essential that their
powers be removed or minimised.
 In a ‘compulsory winding up’, the
powers of the directors are completely
removed.
Managers
 In a ‘voluntary winding up’, the
powers of the directors may in certain
circumstances be allowed to continue.
 For example, S. 279 (2) states that on
the appointment of a trustee, all the
powers of the directors shall cease
save so far as the company in general
meeting or the trustee sanctions their
continuance.
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  The Companies Act provides (as per S.
233) for the investigation of the
conduct of officers with a view to
recovering from them anything which
is not rightfully theirs.
 These provisions operate most
effectively in a ‘compulsory winding
up’ where the independence of the
Investigation trustee is likely to be greatest.
 In a ‘compulsory winding up’, the
trustee must report to the Court and
state inter alia, whether he thinks
further inquiry into the conduct of the
company’s business is desirable.

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 The trustee may make a further
report concerning the manner in
which the company was formed
and whether any fraud has been
committed by any officer or
promoter – S. 233 (2).
Any person thought by the trustee
to have been guilty of fraud may
Investigation be publicly examined in Court.
Even where no fraud is alleged,
the Court may summon and
privately examine anyone
suspected of having company
property in his possession or of
being indebted to the company or
simply of being capable of giving
relevant information – S. 263.
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  These powers can also be exercised in
a ‘voluntary winding up’ on the
application of the trustee, a
contributory (member) or creditor,
even though a report by the trustee
cannot have been submitted – (S. 301).
Investigation
 In addition, the trustee is bound to
refer any apparent crime to the
Director of Public Prosecutions who
may prosecute or refer the matter to
the Minister for investigation.

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  Sections 322 and 323 should be noted,
wherein both sections provide that the
Court will take action against those
responsible for fraudulent activity and
Civil Remedies against delinquent directors.
Against  In addition, S. 324 provides that the
Company Court can hold persons personally
responsible who were knowing parties
Officers to the continuation of the company’s
business with an intent to defraud
creditors or for other fraudulent
purposes.

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  The Companies Act also allows the
Court to issue a misfeasance summons
for the investigation of alleged
misappropriation or breach of trust by
any promoter or officer.
 The director or officer can be
Civil Remedies compelled to make restoration or
Against compensate the company for its loss –
S. 323
Company  These provisions in the Act are likely
Officers to be most effective in a compulsory
winding up, where the investigation is
most likely to be done into suspicious
circumstances.

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  There are provisions in the Companies
Act which limit or invalidate
dispositions of property by the
company and prevent actions against
the company, once the winding up has
Company’s commenced.
Property  These provisions vary in extent among
the different types of winding up and
are most extensive in a compulsory
winding up- (See SS. 225, 227 and
229).

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  Under S. 312, a payment or disposition
e.g., a grant of a charge over assets
made within six months of the
(commencement of the) winding up
with the intention of giving a creditor
Fraudulent preference over other creditors, is
void.
Preferences  Note however, the trustee must show
that the dominant intention of the
company in making the payment or
disposition was the preferring of the
creditor and not some other motive.

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  For example, if it was made because
the particular creditor was pressing,
this would run counter to establishing
a dominant motive of preferring.
Fraudulent  Similarly, creating a charge in favour
Preferences of a bank because the company wanted
further financial support from the bank
would also not be a disposition made
with the dominant motive of preferring
the bank over another creditor.

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  Once winding up commences, the
rules with respect to disclosure are
even more extensive.
 For example, in every type of winding
Publicity up, all business communication from
the company must state that the
company is being wound up, so that
those dealing with the company are
well aware of this fact – S. 327.

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THE END