Winding up a company

I believe that a company is one of the greatest creations of the law. before science came up with robots, the law had come up with a company.

A company is a separate entity from those who “own” it. Such people are simply shareholders. A company is a legal person: it can sue or be sued, it can acquire and transfer property, it pays taxes, it employs people, and it has “hands and feet”

Time comes in the life of a company that it can no longer exist. When that time comes, the company must be wound up. That process is what we call winding up of a company.

It happens in three ways:

  1. By court
  2. By (a) creditor(s)
  3. By the shareholders
By court

Winding up by court is usually done when for some reasons, the shareholders petition court for the company to be wound up. It may be on ground that there is a deadlock between/amongst the directors, that the shareholders agree that they are unable to pay their debts and therefore should be wound up.

In any of such and other incidents, the shareholders petition the court and the court initiates the winding up process. if the reason for winding up the company is that the shareholders are unable to pay their debts, then a liquidator whose job is to manage the debts of the company is then appointed. The company is eventually wound up after the debt due has been paid in full.

By creditors

Creditors can also petition the court for winding up the company. It would essentially be on the basis of non-payment of money that is due. It is one of the legal solutions available to a creditor that guarantees the payment of their money.

By shareholders

Winding up by the shareholders is called voluntary winding up. It is available to shareholders of a company that seeks to wind up its business. Such a company must not be in any one’s debt.

What Happens if the Court Grants the Winding Up Order?

If court grants the winding up order, an official receiver/liquidator is appointed (we shall discuss the difference between these two roles at one point). The receiver/liquidator is supposed to manage the company and lead it to profitability while at the same time, paying off the company’s debts. In the instance that the company cannot be led to profitability, then the receiver/liquidator is supposed to carry out a valuation and sale of all the company’s assets. The money from the assets is used to settle the amount due to the creditors.

In the instance that the company’s assets cannot meet the entire amount due to the creditors, then the shareholders are liable, but only to the extent of their shareholding.

Protecting Your Directors from Penalties and Personal Liability

It is important to note that once court gives the order for winding up, the liquidator/receiver will carry out investigations into the activities of the Directors. He will be checking to ascertain whether there was any fraudulent trading committed by the Directors which led to the company’s insolvency.

If a director is found guilty of fraud or misconduct, he or she is held personally liable for the company’s debts. The guilty Director(s) could also face fines, imprisonment, and disqualification from holding nay Directorship office, among others.

It is quite challenging to the shareholders when a company has to be wound up. However, if it is to happen, let it be done the right way.

Get in touch with us today and we shall be glad to advise on how to go about your circumstances. Do not fret, we give free legal consultation. Click here to inquire.


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