Assignment of winding up of companies

Ameer Ahmad, Roll No.9 On
winding
up of
companies
To be Submitted toSir Mubasshar Tariq Page 1
WINDING UP OF COMPANIES
SYNOPSIS;-
INTRODUCTION
DISSOLUTION AND WINDING UP
PURPOSE OF WINDING UP
KINDES OF WINDING UP
DIFERENCE BETWEEN COMPULSORY WINDING UP AND
VOLUNTARY WINDING UP
DIFERENCE BETWEEN CRDITORS VOLUNTARY WINDING
UP AND MEMBERS VOLUNTARY WINDING UP
WHO CAN ASK FOR WINDING UP
SOME OTHER MODES OF WINDING UP
i. Winding Up On The Report Of Inspector (275)
ii. Winding Up If The Scheme Of Amalgamation Or Reconstruction
Renders Unworkable (Section 285)
iii. Winding Up On The Report Of Registrar Or Any Other Concerned
Person (Section 309)
iv. Striking Off From The Register Or Companies
POWERS OF THE COURT RELATING TO WINDING UP
CONCLUSION

winding
up of
companies
WINDING UP OF COMPANIES
INTRODUCTION
The winding up is the process of dissolution of company by means of which its
assets are collected realized and applied in payment of all types of its debts and the
surplus, if any, is returned to shareholders etc, as per Memorandum and Articles of
association, and as per provisions of Copmanies Ordinance 1984.
In the words of Professor Gower winding up of a company is the process
whereby it life is ended and it’s property administered for the benefit of its creditors and
member. An administrator called a liquidator is appointed and he takes control of the
company, collects its assets pays its debts and finally distributes any surplus among the
members in accordance with their rights.
Winding up of a company differs from the insolvency of an individual inasmuch
a company cannot be made insolvent under the insolvency laws. Moreover, a perfectly
solvent company may be wound up.
A company once incorporated cannot be put to an end except:
i. Through the machinery of winding up; or
ii. By removal from the Register as defunct company
DISSOLUTION AND WINDING UP
The company is not dissolved immediately at the commencement of winding up.
Section 402 of the Companies Ordinance 1984 provides that a company being would up
shall continue to be a company for all purpose, mutatis mutandis, till its final dissolution
in accordance with the provisions of the Ordinance. It means that its corporate status
continue till the order of dissolution by court.
Case Law, as basis of this provsion
As it was held in Grannon Dunkerly and Co Vs. Asstt. Comm. Urban
Tax (1992) that a company remains a tax payer until dissolved by order
of the court.

winding
up of
companies
In case Syndicate Bank v. Printersall P. Ltd. The contention was that
there was no use winding up of the company because all the assets of the
company had already been sold, the court nevertheless ordered winding
up.
PURPOSE OF WINDING UP
The purpose of winding up is to secure the collection and distribution of the
assets of the company of the category to which it belongs. The overall policy ad
purpose laid down in this case is.
i. To examine accounts.
ii. To liquify the assets of the company.
iii. To account for these assets against taxes, wages, salaries, debts, or
equityholders as per their priority as per S.405 of Co. Ord.
iv. To ensure that creditors (if any) are treated equally.
v. The property of the company is to be distributed to the members, in
accordance with their various rights.
vi. The principle of equal treatment of creditors is subject to qualifications
laid down by the Act
vii. Disallow the sick companies to conduct the business.
ORIGIN AND LAW RELATING TO WINDING UP
Under the common law the registration of Companies under Joint Stock
Companies Act 1844 led to the systematic development of winding up regime. Same
year, Winding Up of the Affaris of Joint Stock Companies Act was passed. The
Companies Act 1862 introduced the concept of voluntary winding up and winding up by
the court.
The Company (Winding Up) Act 1890 provided the concept of official receiver,
liquidator and his responsibilities. Companies Act. 1929 introduced distinction between
the voluntary winding up by the creditors. Companies Act 1948 provided the complete

winding
up of
companies
process of winding up. In England, with effect from 29 December 1986, the winding up
has been made part of Insolvency Act 1986 which repealed Section 501 to Section 650
of the Companies Act 1985.
Now, Ss. 297 to 439 of Companies Ordinance 1948 deal with winding up of
companies.
KINDES OF WINDING UP
Winding up is the process by which the management of a company’s affairs is
taken out of its directors hands it assets are realized by a liquidator and its debts are paid
out of the proceeds of the realization and balance remaining is returned to its
shareholders.
Section 297 of the Companies Ordinance 1984 provides follow modes of
winding up:
I) Compulsory winding up under the order of court u/s 305
II) Voluntary Winding up (Section 358)
a. By members u/s 305 (a), (b), 358 (a), 362
b. By creditors u/s 373 – 382
c. Declaration of insolvency by directors u/s 358 (a), 362
III) Winding up subject to supervision of the Court (Section 396)
DIFERENCE BETWEEN COMPULSORY WINDING UP
AND VOLUNTARY WINDING UP
An essential difference between compulsory winding up by the court and
voluntary winding up is that the former does not necessarily involve action taken by any
organ of the company itself, whereas voluntary winding up involve action taken by any
organ of the company

winding
up of
companies
DIFERENCE BETWEEN CRDITORS VOLUNTARY
WINDING UP AND MEMBERS VOLUNTARY WINDING
UP
The essential difference between members and creditors winding up is that the
former is possible only if the company is solvent in which event the company’s
members appoint the liquidators whereas while in case the members fail to declare
solvency as per Ordinance the creditors come in the field and take significant part in
deciding who the liquidator shall be.
Chief Justice Cornelius J. in a case titled as Abdul Salam v. Muhammad Sharif
described the difference between members voluntary winding up and creditors
winding up in the following words.
“The precise effect of the provision of the Act is to divide all voluntary winding
up……..into two categories, namely members voluntary winding up qualifies for
the description members voluntary winding up but if this conditions is not satisfied
the winding up will be classed as a creditors winding up”.
Following are the points of distinction between members voluntary winding up and
creditors voluntary winding up:-
i) A members voluntary winding up is constituted by a declaration
of solvency under Section 362 of the Companies Ordinance. But,
where this declaration is not made the winding up is creditor’s
winding up
ii) In members voluntary winding up the conduct of liquidation
largely remains in the hands of members whereas in creditors
voluntary winding up, the conduct of liquidation remains in the
hands of creditors.
iii) Each kind of winding up is governed by special provisions, in
addition to similar provsions, emumerated in the Ordinance.

winding
up of
companies
In the case of winding up by members it will be deemed to have taken effect with effect
from the date of resolution.
WHO CAN ASK FOR WINDING UP
As per sections 309, by filing a petition, following can ask for winding up;
a. Company
b. Creditors (future or present)
c. Contributories
d. Registrar
e. Commission
f. Person authorised by the Commission.
1. WINDING UP BY COURT (Section 305)
A company may be wound up by an order of the court. This is also
called compulsory winding up. In such case a company shall be deemed to be
wound up form the date of presentation of winding up petition. The cases in
which a company may be wound up by the court are given in Section 305 of the
Companies Ordinance 1984 and are enumerated hereunder:
A. BY SPECIAL RESOLUTION
If the company has by special resolution resolved that it be wound up by
the court. The court is not bound to order winding up simply because the
company has so resolved. The powers is discretionary and may not be
exercised where winding up would be opposed to the public or
company’s interest.
B. DEFAULT IN HOLDING STATUTORY MEETING OR IN
FILING STATUTORY MEETINGS.
C. FILUIRE IN HOLDING TWO CONSECTIVE ANNUAL GENERAL
MEETINGS.

winding
up of
companies
D. FAILURE TO COMMENCE BUSINESS OR SUSPENSION OF
BUSINESS.
If a company does not commence its business within a year from its
incorporation or has suspended business for a whole year, it may be
ordered to be wound up. Here again the power is discretionary and will
be exercised only when there is a fair indication that there is no intention
to carry on business. If the suspension is satisfactorily accounted for and
appears to be due to temporary causes the order may be refused.
In case Ali Wollen Mills Ltd. V. Industrial Development Bank Of
Pakistan it was observed that discretion of the court to refuse to make an
order for winding up of the company can be exercised where the
company was undisputedly running in loss year after year and the mills of
the company were closed since long. In such circumstances, the court
was justified in coming to the conclusion that it was just and equitable
that the company be wound up.
In case Eastern Telegraph Co. Ltd. Re., where a company’s subsidiaries
were functioning winding up was not ordered though the company itself
had ceased to function.
Where the business of a private company which was a family concern
remained suspended for many years for want of quota of wires the
company had no creditors the Registrar’s attempt to put it on winding up
on account of suspension of business and perpetuity of losses did not
succeed. A family company having no creditors, should not concern the
public whether is running in profits or losses. Where of the several
business units of a company, the business of only one unit was closed
with a proposal to dispose it off and to use the proceeds in the
exploitation the other objects the court did not agree that it was a ground
for winding up. The court said that even if the business in all the units of
the company was suspended, it would still be open to the court to
examine whether it would be possible for the company to resume its
business

winding
up of
companies
E. REDUCTION IN MEMBERSHIP
If the number of member is reduced in the case of a public company
below seven and in the case of a private company below two the
company may be ordered to be wound up.
F. INABILITY TO PAY ITS DEBTS / INSOLVENCY OF COMPANY
A company may be ordered to be wound up if it is unable to pay its debts
as explained in Section 306 of the Companies Ordinance 1984. A
company shall be deemed to be unable to pay its debts in the following
three case:
I. Statutory Notice
If a creditor to whom the company owes a sum exceeding one
percent of it’s paid up capital or 50,000/- rupees. Whichever is
less, than due, has served on the company, by causing the same to
be delivered by registered post or otherwise at its registered office
a demand under his hand requiring the company to pay the sum so
due and the company has for 30 days thereafter neglected to pay
the sum or to secure or compound for it to the reasonable
satisfaction of the creditor, or
II. Decreed Debt
A company shall be deemed to be unable to pay its debts if
execution or other process issued on a decree or order or any
Court in favour of a creditor of the company is returned
unsatisfied in whole or in part.
III. Commercial Insolvency
If it is proved to the satisfaction of the court the company I unable
to pay its debt. In determining this court shall take into account
the contingent and prospective liabilities of the company. The
expression “commercial insolvency” was explained by Sir James
in European Life Assurance Society Re. not in any technical

winding
up of
companies
sense but plainly and commercially insolvent that is to say that its
assets are such and existing liabilities are such, as to make it
reasonably certain – to make the court feel satisfied – that the
existing and probable assets would be insufficient to meet the
existing liabilities.
G. IF THE COMPANY IS:
I. Conceived or brought forth or is or has been carrying unlawful or
fraudulent activities.
In case Fida Ali Yousaf Ali v. Grazalt Refineries Ltd., it was
observed that the court may order company to be wound up, if its
substratum is gone and particularly if majority of shareholders is
deceptive. Court not bound to accede to wishes of shareholders or
creditors one-way or other.
II. Involved in commiting fraud
III. Carrying on business not authorized by the memorandum
IV. Conducting its business in a manner oppressive to any of its members
or persons concerned with the formation or promotion of the
company or promotion of the or the minority shareholders.
V. Run and managed by persons who fail to maintain proper and true
accounts or commit fraud, misfeasance or malfeasance in relation
to the company; or
VI. Managed by persons who refuse to act according to the
requirements of the memorandum or articles or the provisions of
Companies or fail to carry out directions or decisions of the Court
or the registrar or the Commission (SECP) given in exercise of
powers under the Ordinance.
VII. If being a listed company, it ceases to be such company.
VIII. If the court is of the opinion that it is just and equitable to wind it
up

winding
up of
companies
(Details not given because this topic was given for making a
separate assignment)
2. VOLUNTARY WINDING UP (Section 358)
Voluntary winding up is of two kinds. If declaration of solvency is made in
accordance with Section 362 of the Companies Ordinance. It will be a member’s
voluntary winding up. The declaration has to be made by majority of the directors at
a meeting of the board and verified by an affidavit. They have to declare that they
have made a full inquiry into the affairs of the company and have formed the opinion
that the company has no debts rot ha tit will be able to pay its debts if full within a
certain period.
3. WINDING UP SUBJCT TO SUPERVISION OF THE COURT
(Section 396)
After a company has passed a resolution for voluntary winding up, the court may
make an order that the voluntary winding up shall continue but subject to
supervision of the court. The extent of supervision is to be determined by the court.
The court may also appoint an additional liquidator or liquidators and may according
exigencies remove any liquidator and fill and fill any vacancy occasioned by the
removal or by death or resignation.
The most important aspect of the order is that the court gets the same powers as
it has in the case of a winding up by the court. While the winding up remains
basically a voluntary winding up, the advantage of a compulsory winding up. A
supervision order is an amalgam of both voluntary winding up and a winding up by
court an dit is made on such terms and conditions as the court thinks just.
However, the company may still subsequently be ordered to be wound u by the
court. In such a case the court may declare that the liquidator who was then
functioning will continue as an official liquidator.
SOME OTHER MODES OF WINDING UP

winding
up of
companies
1. WINDING UP ON THE REPORT OF INSPECTOR (275)
Section 275 of the Companies Ordinance 1984 provides that if it appears to the
Commission (SECP) from any report made under Section 269 by the Inspector
that it is expedient to wind up a company, then the Commission (SECP) unless
the company or other body corporate is already being wound up by the Court cause
to be presented to the court by the registrar or any person authorized by the
Commission (SECP) in this behalf.
a. A petition for the winding up of the company or body corporate on
the ground that it is just and equitable that it should be wound up.
b. An application for an order under Section 290 (appropriate order
under parental jurisdiction of the court against oppression and
mismanagement): or
c. Both a petition and an application as aforesaid.
2. WINDING UP IF THE SCHEME OF AMALGAMATION OR
RECONSTRUCTION RENDERS UNWORKABLE (Section 285)
If the scheme of arrangement amalgamation reconstruction or compromise is not
workable, the court may order winding up. This winding up will be one of the
winding up mentioned under Section 305 of the Companies Ordinance 1984.
3. WINDING UP ON THE REPORT OF REGISTRAR OR ANY OTHER
CONCERNED PERSON (Section 309)
Section 309 of the Companies Ordinance 1984 provides that an application for
winding up of a company shall be by petition presented subject to the provisions of
this section either by the company or by any creditor or creditors (including any
contingent or prospective creditor or creditors) or by any contributory or
contributories or by all any of the aforesaid parties, together or separately or by the
registrar or by the SECP or by a person authorized by the Authority in that behalf.
4. STRIKING OFF FROM THE REGISTER OR COMPANIES

winding
up of
companies
In practice, the largest number of companies are dissolved by the simple
administrative procedure of striking off the register. Section 439 of the Companies
Ordinance 1984 empowers the registrar to do this after advertisement if his inquiries
show or suggest that the company has ceased to carry on business lawfully or
according to its objects. This is a very useful sanction in the case of company, which
has failed to file accounts or annual returns. It is quite common for the registrar to
be invited by the company itself to exercise these powers and in this way the
expense of a formal liquidation is avoided.
POWERS OF THE COURT RELATING TO WINDING UP
Court are generally very slow to entertain an application of winding up. Section
314 of the Companies Ordinance 1984 provides that after hearing a winding up
petition, the court may dismiss it with or without costs; or adjourn the hearing or
make an order for winding up or any other order it thinks fit. The court can also
issue a conditional order of winding up.
Further under Section 314(2) when a petition 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 it is of the opinion that some other remedy is available to
the petitioner and that they are acting unreasonably in seeking to have the company
wound up instead of pursuing that remedy.
Section 314(4) provides that if on haring a petition, the court is of the opinion that
although the facts would justify the making of a winding up order the making of
such order would unfairly prejudice the members or the creditors the Court may
instead of making an order for winding up the company make such order as it thinks
in the circumstances for regulating the conduct of the affairs of the company and
bringing to an end the mattes complained of, including an order or a change in the
management of the company.
Section 314(5) further provides that an order of winding up shall be intimated
forthwith to the Registrar and the Liquidators appointed by the Court.

winding
up of
companies
Section 316 of the Companies Ordinance 1984 provides that when a winding up
order has been made a or a provisional manager has been appointed no suit or other
legal proceedings shall be proceeded with or commenced against the company
except by leave of the court and subject to such terms as the court may impose.
Section 316(2) provides that the court winding up the company shall have the
jurisdiction to entertain or dispose of any suit or proceedings by or against the
company.
Section 319 states that the court may at any time not later than three years after an
order for winding up on the application of any creditor or contributory or of the
registrar of the authority or a person authorized by it, and on proof to the satisfaction
of the court that tall proceedings in relation to the winding up ought to be stayed,
withdrawn cancelled or revoked make an order accordingly, on such terms and
conditions as the court thinks fit.
Section 318 of the Companies Ordinance 1984 provides that effect an order of
winding up will be that it shall operate in favour of all the creditors and of all the
contributories of the company as if made on the joint petition of a creditor and of a
contributory.
CONCLUSION
Companies are given life through the ensouling of incorporation and are vanished
through the process of winding up or liquidation which ends in dissolution of company. The
winding up is a process entailing differing actions to liquify the assets of the company and
accounting for the assets to the persons entilted for them as per their order of priority set in the
law. During this process directors are sidelined and liquidater/official reciever takes the control
into his hands, and acting in accordance with law give end to the artificial legal personality.

Assignment of winding up of companies

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Assignment of winding up of companies