Unit 5 Winding up.pptx regarding Bhutann

The process of Winding up of company regarding Bhutan companies act of kingdom of Bhutan 2016

1. UNIT 5 WINDING UP BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

2. UNIT 5 WINDING UP BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

3. INTRODUCTION Winding up (also called liquidation) is the method by which a company’s life is ended and its property is administered for the benefit of its creditors and members. Important to distinguish between insolvency procedures, and liquidation procedures - not all insolvencies result in liquidation and sometimes a company that is not insolvent will be put into liquidation e.g. a members’ voluntary winding up or a winding up by the court. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

4. INTRODUCTION ( cont ) Insolvency  (liquidity/cash) = a lack of funds to pay debts as they fall due. Winding   Up   = ending of all business affairs and includes the closure of the company ( including liquidation or dissolution ). Liquidation  = is the final step before a company’s dissolution and is specifically about selling off company assets to pay creditors including the how a company (or part of a company) is brought to an end. It comes in 2 forms: Voluntary winding up; and Winding up by the court BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

5. CORPORATE RESCUE Corporate failure and its subsequent winding up or liquidation has a substantial adverse effect on numerous people e.g. employees, suppliers and retailers, creditors and shareholders etc. Companies in financial difficulties will sometimes try to make arrangements with creditors to delay payments or by making an agreement to pay the whole or part of a debt over time. These can be voluntary or by a court approved scheme of arrangement. We will look at this in Unit 6 . BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

6. FORMS OF LIQUIDATION Liquidations are governed by Chapter 13 CA 2016 . Often, corporate rescue is not possible and the company cannot trade out if its difficulties and will need to be wound up (liquidated). Liquidation comes in 2 forms: Voluntary winding up (s.312 – 325) Winding up by the court (s.326 - 359) BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

7. 1. VOLUNTARY WINDING UP S.312 CA2016 Voluntary winding up is only available to solvent companies . Method by which company may be wound-up voluntarily: 1. Directors make a declaration of solvency; and 2. (a) the period (if any) fixed for the duration of the company by AOI has expired; or (b) the event (if any), has occurred, whereby the AOI provide that the company is to be dissolved; or 3. the company passes a special resolution. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

8. 1. VOLUNTARY WINDING UP (cont.) Statutory declaration of solvency S.313 - 316 The directors’ statutory declaration of solvency: 1. Has a statement that : (a) they have made a full enquiry into the company’s affairs; and (b) have formed the opinion that the company will be able to pay its debts in full within a specified period, not exceeding 12 months from the commencement of the winding up. 2. shall be made within 5 weeks before the date of passing the resolution or on that date but before the passing of the resolution; and 3. include a statement of the company’s assets and liabilities before the date of the declaration. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

9. 1. VOLUNTARY WINDING UP (cont.) Statutory declaration of solvency S.313 - 316 Director’s liability for the declaration A director making a declaration without having reasonable grounds for the opinion that the company is able to pay its debts in full (plus interest) is liable for an administrative penalty; and Presumed that the director did not have reasonable grounds if the debts are not paid/provided for in full, if the company is wound up voluntarily BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

10. 1. VOLUNTARY WINDING UP (cont.) Statutory declaration of solvency S.317 Insolvency If the directors form the opinion that the company will not be able to pay its debts in full , the winding up of company shall be governed by the provisions of the Bankruptcy Act of the Kingdom of Bhutan. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

11. 1. VOLUNTARY WINDING UP (cont.) Delivery to the Registrar and publication s. 318 -319 1. Within 14 days of the passing of the resolution, the company shall: (a) deliver a copy of the resolution and the declaration of solvency to the Registrar; and (b) give notice of the resolution by advertisement in the newspaper circulating in the district where the registered office of the company is situated. 2. The company and every officer will be liable to an administrative penalty on failure to deliver the copy of the resolution and declaration of solvency to the Registrar within 14 days. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

12. 1. VOLUNTARY WINDING UP (cont.) Commencement of winding up S.320 -321 From the date at which the resolution for voluntary winding up is passed: The voluntary winding up is deemed to commence ; and the company shall cease to carry on business , except as required for the beneficial winding up of the business; AND (c) the corporate state and corporate powers of the company shall continue until it is dissolved. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

13. 1. VOLUNTARY WINDING UP (cont.) Appointment of Liquidator S.322 - 325 The company in general meeting shall: (a) appoint one or more liquidators; and (b) fix the remuneration, if any, to be paid to the liquidator(s) The powers of the Board of directors and of the Management cease, on the appointment of a liquidator. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

14. 2. WINDING UP BY THE COURT Application S. 328 Winding up by the court (also known as Compulsory Winding up) occurs where a person petitions the court for an order to wind up the company and the court makes the order. The court has NO POWER to compulsorily wind up a company on its own initiative. Application to the Court can be made by: the company; b) the directors; c) any creditor or creditors; d) the Registrar; e) the Regulatory Authority; or f) a) to e) together or separately. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

15. 2. WINDING UP BY THE COURT(cont.) Requirements s.326 - 327 A Company may be wound up by the Court if: The company has resolved by special resolution that the company be wound up by the Court; the company is unable to pay its debts ; the Court is of the opinion that it is just and equitable to wind up the company. If the petition is based on b) above, the company is deemed unable to pay its debts if it commits an act of bankruptcy pursuant to the Bankruptcy Act and the winding up will be governed by that Act BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

16. 2. WINDING UP BY THE COURT (cont.) On just & equitable grounds S.336 Where a petition for winding up is presented on the ground that it is just and equitable that the company should be wound up, the Court may refuse to make an order of winding up if the Court is of the opinion that: some other remedy is available to the petitioners; and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

17. 2. WINDING UP BY THE COURT (cont.) Commencement s.329 - 331 Advertisement of Petition In a national newspaper for at least 7 days after the petition has been served on the company and not less than 7 days before the hearing date. Commencement Deemed when the petition is presented to the Court. If a resolution for voluntary winding up has been passed by the company, then commencement is deemed to be the date of passing of the resolution (unless proof of fraud, mistake etc ) BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

18. 2. WINDING UP BY THE COURT (cont.) After commencement s.332 - 334 1. After commencement and before a winding up order is made: Any disposition of the company’s property, transfer of shares and alteration in status of shareholders will be VOID; The court may stay any suit or proceedings against the company; 2. Any attachment or execution put in force against the company AFTER the commencement of winding up is VOID. Order for winding up (S.337) To be filed with Registrar of Companies within 15 working days of the date of the order. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

19. 2. WINDING UP BY THE COURT (cont.) Appointment and Statement of Affairs Appointment of liquidator (S.338) A liquidator shall be appointed by the Court at the same time as the winding up order is made. Statement of affairs to be made to liquidator (S. 343) By persons within 21 days from the date of a notice of requirement given to them by the liquidator: (a) particulars of company’s assets and liabilities ; (b) the names and addresses of the company’s creditors ; (c) the securities held by them; (d) the dates when the securities were given ;and (e) such other information as required by the liquidator. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

20. 2. WINDING UP BY THE COURT (cont.) Statement of Affairs (S.344) The persons required to provide the Statement of Affairs to the liquidator are: Former and present officers of the company; Those who took part on the formation of the company within 1 year before the relevant date; Employees or past employees (within that year) who may be capable of giving information to the liquidator; BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

21. 2. WINDING UP BY THE COURT (cont.) Duties and Powers of Liquidators S.360 - 361 Duty (S.360) To act honestly and in good faith and he will be responsible to the Court in properly carrying out the winding up. Powers of Liquidators (S.361) Legal proceedings in the name and on behalf of the company; Carry on the business if required for the beneficial winding up of the company; Sell any property and actionable claims of the company by public auction or private contract; BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

22. 2. WINDING UP BY THE COURT (cont.) Powers of Liquidators S.361 d) raise money on the security of the company’s assets; e) Anything necessary to wind up the affairs of the company and distribute its assets; f) Execute deeds, receipts and other documents in the name and on behalf of the company g) inspect the company’s records and returns at the Registrar; h) prove, rank and claim in the insolvency of any contributory, and receive dividends; ( i )To draw, accept, make or endorse any bill of exchange or promissory note on behalf of the company BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

23. 2. WINDING UP BY THE COURT (cont.) Functions of a Liquidator S.362 Functions of a Liquidator (a) secure the assets of the company are got in and distributed to the company’s creditors and the surplus, to the persons entitled to it; (b) take into custody the properties and effects to which the company is or appears to be entitled; BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

24. 2. WINDING UP BY THE COURT (cont.) Functions of a Liquidator S.362 (c) in a winding up by the Court, as soon as practicable after receipt of a statement under s. 343 and not later than 6 months from the date of the winding up order (or a period extended by the Court) to submit a report to the Court : as to the amount of capital issued, subscribed and paid up , and the estimated amounts of assets and liabilities ; if the company has failed, the cause or causes of failure ; and whether in his opinion, further enquiry should be conducted as to any matter relating to the promotion, formation or failure of the company, or the conduct of its business. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

25. 2. WINDING UP BY THE COURT (cont.) Functions of Liquidator S.362 (d)where the winding up is complete, to make a final account of the winding up showing how the winding up has been conducted and the property disposed of ; (e)after preparing the final winding-up account, to give public notice of not less than 1 month to summon: a final general meeting of the company; and for a winding up by the Court, also a meeting of the creditors to receive his account of the winding up ; (f) within 1 week of the general meeting of the company or a subsequent meeting of the creditors, if applicable, to send a notice that the winding up is complete together with a copy of the final account to the Registrar of Companies and, in the case of a winding up by the Court, to the Court. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

26. 2. WINDING UP BY THE COURT (cont.) Function of Liquidator s.363 If the winding up takes more than 1 year, the liquidator shall: Call a general meeting at the end of the first year and each succeeding year from the commencement of the winding up; and Lay before the meeting an account of his acts, dealings and conduct during the winding up together with a statem ent of receipts and expenses duly audited and the status of the liquidation BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

27. 2. WINDING UP BY THE COURT (cont.) Consequences - Dissolution of the company Dissolution of company (S.364) On the expiration of 3 months from the registration of the final account by the Registrar, received from the liquidator, the company is deemed to be dissolved. Property of dissolved company (S.378) When a company is dissolved , all property and rights vested in or held on trust for the company immediately before its dissolution (but not including property held by the company on trust for another person) shall vest in the Government and be administered by the Ministry of Finance. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

28. 2. WINDING UP BY THE COURT (cont.) Consequences – Delinquent directors S.359 The Court, on application from: a) a liquidator; b) creditor; or c) shareholder, may examine the conduct of the following: Any person who has taken part in the promotion or incorporation of a company; Any past or present director, manager, officer or liquidator of the company, Has Misapplied or retained or become liable or accountable for money or property of the company; or Has been guilty of any misfeasance or breach of trust. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

29. 2. WINDING UP BY THE COURT (cont.) Consequences – Delinquent directors S.359 CA2016 The Court can compel such persons to: Repay or restore the whole or part of the money or property with interest; or Contribute to the assets of the company by way of compensation. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

30. 2. WINDING UP BY THE COURT (cont.) Consequences – on prior transactions Bankruptcy Act 1999 Bankruptcy Act 1999 also applies where the winding up by the court is because the company cannot pay its debts and will affect transactions undertaken prior to the company being adjudged bankrupt: Any voluntary transfer of property undertaken within 6 months prior to being adjudged bankrupt is avoidable by the liquidator and may be annulled by the court (unless undertaken in good faith and for valuable consideration) (S96) ; BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN

31. 2. WINDING UP BY THE COURT (cont.) Consequences – on prior transactions Bankruptcy Act 1999 2. A transfer of property, payment made, and obligation incurred by a company who is unable to pay its debts as they come due shall be deemed fraudulent and void against the receiver , and may be annulled by the court , provided: ( i )  the company is adjudged bankrupt within 6 months of the transfer, payment or obligation incurred; and (ii)  the transfer or payment was made, or the obligation incurred in favour of any creditor to prefer the creditor over other creditors. (S.97) The rights of any person who in good faith and for valuable consideration has acquired title through or under a creditor of a bankrupt debtor. BLT204_CORPORATE LAW_SPRING2024_SONAMCHODEN