MRL3701 - STUDY UNIT 22 - WINDING UP COMPANIES QUESTIONS WITH VERIFIED ANSWERS

WINDING UP MEANS - correct 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 - correct answer --1. Section 79 - 81 of the Companies Act 71. Winding up of solvent companies 2. Chapter 14 of the Companies Act. 3. Various provision of the Insolvency Act. MODES OF WINDING UP AND ALTERNATIVES TO WINDING UP - correct answer --Company may be wound up in either of the two ways: 1. By the court 2. voluntarily WINDING UP BY THE COURT - correct 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 - correct 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 - correct 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. WHEN COMPANY MAY BE WOUND UP BY COURT - correct answer --1. Special Resolution 2. Failure to commence of continue with business 3. loss of capital 4. inability to pay debts lution of external company 6. just and equitable 7.Conversion of voluntary winding up into winding up by court 8. no reasonable prospect of business rescue succeeding 9. termination of business rescue proceedings 10. Deadlock my management or voting 11. Fraud, illegality or misapplication of company assets 12. failure to comply with compliance notice. FAILURE TO COMMENCE OR CONTINUE WITH BUSINESS - correct answer --Court may wind up company if it has not commenced its business within a year from its incorporation or if it has suspended it business for a whole year LOSS OF CAPITAL - correct answer --If 75% of its issued share capital has been lost or become useless for its business. INABILITY TO PAY DEBTS - correct 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 - correct 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. 2. 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. 3. 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 - correct 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 - correct 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. 1. Where main object for which the company was formed is not possible of being attained. 2. where company lacked infra