Issued but unpaid (K2,000,000) A2
1. Compulsory Winding-Up
The jurisdiction to wind-up a company in Zambia is found in section 269 of the Companies Act. Only the High Court of Zambia is empowered to wind-up a body corporate incorporated in Zambia as well as those incorporated in foreign countries and either registered as foreign company; or having any business or undertaking or assets in this country. The provisions, which apply to compulsory winding-up, are contained in the following: Division 13.2, i.e. winding-up by the Court; Division 13.7, i.e. provisions applicable to every mode of winding-up; and the Companies Winding-up Rules 2004 (Statutory Instrument No. 86 of 2004).
(i) Persons who may petition for compulsory winding-up
Section 271(1) of the Act highlights the persons who may petition for compulsory winding-up. Subject to the section, a company may be wound-up by the Court on the petition of-
a) The members or shareholders may pass a special resolution seeking to have the company compulsory wound-up;
b) Any creditor, including a contingent or prospective creditor, of the company;
c) Any member of the company;
d) Any person who is the personal representative of a deceased member;
e) The trustee in bankruptcy of a bankrupt member;
f) Any liquidator of the company appointed in a voluntary liquidation; or g) The Registrar of Companies.
There are some restrictions, which affect the right or entitlement of a member to present a winding-up petition (section 271(2)). A member shall not be entitled to present a winding-up petition unless his shares, or some of them-
a) Were originally allotted to him;
b) Have been held by him, and registered in his name for at least six months; or c) Have devolved on him by operation of law.
87 (ii) Grounds for Compulsory Winding-Up
Section 272(1) provides that the High Court of Zambia may order winding-up of a company pursuant to a petition presented by a person other than the Registrar under any of the following circumstances:-
a) here the company has by special resolution resolved that it wound-up by the Court;
b) Where and if the company does not commence its business within 12 months after its incorporation or suspends its business for 12 months;
c) If the company is unable to pay its debts; in Lawrence Munengo v First Alliance Bank & Others SCZ Appeal No. 63 of 2001, the Court held that, in accordance with section 272(1)(c) of the Act, a creditor can petition for the winding-up of a company which has failed to pay its debts in terms of section 272(3)(a)(i) and any other creditors would be paid their packages in the winding-up process based on section 346.
d) If the period fixed for the duration of the company by the articles has expired.
Here the company would have set out in its articles that the company will exist for a period or until the completion of a task.
e) Where the number of members is reduced below two; or
f) Where, in the opinion of the Court, it is just and equitable that the company should be wound-up.
The Registrar is also entitled to cause the company to be compulsorily wound-up on account of persistent breach of the provisions of the Act. Inability to pay debts as they fall due is invariably the most common ground here (section 272(3)).
(iii) Commencement of Compulsory Winding-Up by the Court (section 273)
A compulsory winding-up will be deemed to have commenced at the time the relevant petition is presented. But, where before the presentation of the petition for the winding-up of a company by the Court, a resolution has been passed by the company for voluntary winding-up, the winding-up of the company shall be deemed to have commenced at the time of passing of the resolution as opposed to the date of presentation of the petition (section 273(1)).
(iv) Presentation of a Winding-Up Petition
88
Presentation of a winding-up petition entails taking the petition accompanied by an affidavit verifying the facts for filing in the Commercial Registry of the High Court. Once the petition has been successfully filed, the Court will set the date and place for hearing the winding-up petition. Rule 6 of Winding-up Rules requires that the winding-up petition must be advertised either in the Government Gazatte or newspaper circulating in Zambia. Failure to advertise the petition would cause the petition to be cancelled.
(v) Appointment of Provisional Liquidator
This is provided for in section 280 of the Act and rule 8 of the Winding-up Rules.
Section 280(1) provides that the Court may appoint the Official Receiver or any other person to be liquidator provisionally at any time after the presentation of a winding-up petition and before the making of a winding-up order. The Official Receiver here is the Administrator General.
Rule 8 of the Winding-up Rules also entitles a petitioner, a creditor or a contributor to make an ex-parte application for the appointment of a provisional liquidator. The reason for appointment of a provisional liquidator is to avoid creation of a vacuum in the management of a company, which would lead to the stripping of the company’s assets. The provisional liquidator therefore, takes charge of the company before a substantive liquidator is appointed to take charge and control of the company.
(vi) Effect of Commencing Winding-up
Winding-up is a very destructive process. Once a petition has been presented to the High Court, any disposition of the property of the company including things in action, and any transfer of shares or alteration in the status of the members of the company shall be void unless the Court otherwise orders (section 277). Further, any attachment, sequestration, distress or execution put in force against the estate or effects of the company after the commencement of a winding-up by the Court shall be void (section 278).
(vii) Hearing of a Winding-up Petition
Section 275(1) provides that on the hearing of the winding-up petition, the judge can do one of the three things:
a) Dismiss the petition with or without costs;
b) Adjourn the hearing of the petition conditionally or unconditionally; or c) Make any interim order or other order that it thinks fit;
89
In the event that the Court pronounces a winding-up order, it may simultaneously appoint a liquidator or give directions with regard to the appointment of a liquidator either by the shareholders, creditors of the company or otherwise (section 282(1)). If the judge upon pronouncing the winding-up order does not give any directions as to who the liquidator shall be, then the default clause in section 282(2) shall apply and therefore, the Official Receiver shall be the liquidator of the company.
(viii) Registration of a Winding-up Order
Section 279(1) of the Act provides that within 15 days after the making of a winding-up order the petitioner shall –
a) Lodge a copy of the order with the Registrar;
b) Cause a copy to be served upon the secretary of the company concerned or upon such other person in such manner as the Court directs;
c) Deliver a copy to the Official Receiver, if the Official Receiver has not been appointed as liquidator or if no liquidator has been appointed; and
d) Where any other person is acting as liquidator, such other person must also be availed with the order.
Once a copy of the winding-up order has been served upon the Registrar, she must cause the winding-up order to be published in the Government Gazette within 15 days after being served with the copy of the order (section 279(2)).
(ix) Powers of the Liquidator
Section 289(1) of the Act provides that the liquidator may, during the four weeks following the date of the winding-up order, carry on the business of the company so far as is necessary for the satisfactory winding-up thereof. Specific powers are listed in subsection 2 of the section.
(x) Remuneration of a Liquidator
Section 285(1) provides that a liquidator other than the Official Receiver shall be entitled to receive such salary or remuneration by way of commission otherwise as is determined –
a) By agreement between the liquidator and the committee of inspection (if any);
b) By an extraordinary resolution passed at a meeting of creditors convened by the liquidator by a notice to each creditor to which was attached a statement of all receipts and expenditure by the liquidator and the amount of remuneration sought
90
by him, failing such an agreement or where there is no committee of inspection;
or
c) By the Court, failing a determination under paragraph (a) or (b).
(xi) Release of a Liquidator
This relates to the manner in which a liquidator could be released from his duties as a liquidator. Section 291 states that, “when the liquidator –
a) Has realized all the property of the company or so much thereof as can in his opinion be realized without needlessly protracting the liquidation, and has distributed a final dividend, if any, to the creditors and adjusted the rights of the members among themselves and made a final return, if any, to the members; or b) Has resigned or has been removed form his office; he may apply to the Court for
an order –
i. That he be released; or
ii. That he be released and that the company be dissolved.”
(xii) Appointment of a Committee of Inspection
According to section 294 appointment of committee of inspection, if necessary, should be by the creditors and members on request by the liquidator. Where the creditors and members fail to agree, then the Court will decide the matter and make appropriate orders. The committee of inspection shall consist of members and creditors of the company or their representatives (section 295(1)). They shall be appointed by the meetings of creditors and members in such proportions as are agreed or, if there is no agreement, as are determined by the Court.
(xiii) Final Dissolution of a Company
Where the Court has made an order that the company be dissolved, the Registrar shall, upon lodgment with him of a copy of the order, strike the name of the company off the register and notify the same in the Government Gazette, and the company shall thereupon be dissolved as at the date of the publication of the notice in the Gazette (section 293).