Winding Up of a Company

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  • Topic: Liquidation, Bankruptcy, Secured creditor
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CHAPTER 24

Winding-Up (Sections 425 – 560)
Contributories
Liability as contributories of present and past members (Section 426) Question 1
By an order of the Court M/s ABC Limited was wound up with effect from 15.3.2002. Mr. Gupta, who ceased to be a member of the Company from 1.6.2001 received a notice from the liquidator to deposit a sum of ` 15,000 as his contribution towards the liability on the shares previously held by him. Mr. Gupta seeks your opinion about his liability. Answer

Liability of Contributory
‘Contributory’ is a term used in the case of winding up of a company. A Contributory can be past or present member and is liable to contribute to the assets of the company in the event of winding up.

In the instant case, Mr. Gupta ceased to be a member of the Company when it went into liquidation from 15.3.2002. Thus, Mr. Gupta will be treated as a past member. He will not be required to contribute to the assets of the company if the following conditions are fulfilled: (1) If Mr. Gupta had ceased to be a member of the company for a period of one year or upwards before the commencement of the winding up. In this case, since one year has not elapsed, Mr. Gupta will be liable to contribute to the assets of the company. (2) If the debt or liability of the company was contracted or incurred after he ceased to be a member.

(3) If the present members are able to satisfy the contributions required to be made by them under the Act.
In any case, the liability of the past or present member cannot exceed the unpaid amount on the shares and if the shares are fully paid up, no contribution is required to be made by the members past or present.

Question 2
X Ltd. had gone into liquidation and a liquidator was appointed to administer the assets and liabilities of the Company. The liquidator of the Company finds that the assets of the Company are not sufficient to meet out the liabilities. He therefore, calls on the contributories including the part members as per List B to contribute towards the assets. The past members object to the liquidator’s act on the ground that since there are no more members of the Company, they are not liable to contribute. Referring to the provisions of the Companies Act, 1956 decide:

© The Institute of Chartered Accountants of India

24.2

Corporate and Allied Laws

(i)

Whether the contention of the past member is tenable and can they be exempted from the liability to contribute?

(ii)

What would be your answer in case the members in question are the present members?

Answer
In accordance with the provisions of the Companies Act, 1956, as contained in Section. 426, in the event of a Company being wound up every present and past member shall be liable to contribute to the assets of the Company to an amount sufficient (a) for payment of (i) its debts and liabilities, and (ii) costs, charges and expenses of the winding up, and

(b) for the adjustment of the rights of the contributories among themselves. The liability of the present member i.e. as per List A shall be limited (i)

in case of a Company limited by shares , to the amount remaining unpaid on the shares; and

(ii)

in case of a Company limited by guarantee, to the amount undertaken to be contributed by him to the assets of the Company in the event of its being wound up.

However, in the winding up of a Company limited guarantee, which has a share capital, every member of the Company shall be liable, to contribute not only the amount undertaken to be contributed by him in the event of winding up but also to contribute to the extent of any sum unpaid on any shares held by him as if the company were a company limited by shares. Liability of Past Members: (List B)

A past member shall not be liable to contribute:
(i)

if he has ceased to be a member for 1 year or more before the commencement of the winding up;

(ii)

in respect of any debt or liability of the Company contracted after he ceased to be a...
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