ROLE OF LIQUIDATORS
A
liquidator is just like a bankruptcy trustee. A liquidator is basically a
specially appointed officer whose work is to wind up the affairs of the company[1].
They are often used when a company goes bankrupt[2]. A
liquidator is responsible for collecting all the assets of a company and
settling all claims against the company[3].
They can be appointed by creditors, shareholders or by a court order[4]
So
what exactly are the general roles of liquidator’s as provided under the
insolvency Act 2015?
In the event of a voluntary liquidation, the liquidator may exercise the court powers of settling a list of contributories[5], make calls on unpaid shares[6], Convene general meetings[7] and pay companies debts[8].
In the event of a voluntary liquidation, the liquidator may exercise the court powers of settling a list of contributories[5], make calls on unpaid shares[6], Convene general meetings[7] and pay companies debts[8].
In
the event of a creditor’s voluntary liquidation, the liquidator is to assume
all control of the company’s assets[9],
dispose of perishable goods that may diminish in value[10]
and take any action necessary to protect the company’s assets[11]
The
liquidator is entitled to distribute assets to the payment of creditors[12].
They also have the power to dispose of onerous property this is property that
has no net value for example it includes an unprofitable contract and
unsaleable property[13].
Further they may transfer company assets to employees[14].
The
liquidator must lodge from time to time reports to the registrar of companies
with regards to the state of liquidation[15].
The
liquidator may pay any class of creditors in full[16],
they can make any compromise or arrangement with creditors[17].
He/she has power to borrow money for the beneficial realization of the
company's assets[18].
The liquidator has power to defend and bring a suit in the company’s name[19]
and carry out company’s business so long as is necessary for a beneficial
liquidation[20].
The
liquidator can without seeking approval, sell any of the company's property[21]
and lastly the liquidator has the power to appoint an agent to carry out
business which he/she is unable to do[22]
DISSOLUTION OF
COMPANIES AFTER LIQUIDATION[23].
i.
Voluntary liquidation.
This
only applies to a company whose final accounts and returns[24]
have been lodged with the registrar[25]
by the liquidator[26]. The registrar shall register them and the
company shall be dissolved within three months of registration[27].
The court has discretion to alter the date of dissolution to a later one on the
application of the liquidator or any other person with locus standi, in such a case a copy of the application shall then
be lodged with the registrar within seven days of the order of registration[28]. Failure of lodging a copy of the order with
the registrar is an offence that attracts a fine or not exceeding Ksh. 2000[29].
Continuance failure of registration attracts a daily penalty of a fine not
exceeding Ksh. 2000 for each day[30].
The importance of lodging the copy with the registrar is for the formality of
registration as well as availing the document to the public for inspection upon
payment of a certain amount[31].
ii.
Early dissolution of a company.
This
is essentially compulsory liquidation of a company. This occurs once the court
makes an order for the dissolution of a company and the liquidator becomes the
official receiver[32].
An application of dissolution is then made by the official receiver to the
registrar if satisfied that the realisable assets of the company are
insufficient to cover the expense of the liquidation as well as the assessment
that the affairs of the company do not require further investigation[33].
In practice this is normally accompanied with the public interest question. The
intention to make this application for early liquidation should be notified to
the creditors and contributories of the company; this is the final duty of the
official receiver and no other obligation may be imposed on him or her[34].
The registrar then registers the application within 30 days of receiving it and
the company is then considered dissolved[35].
Consequence
of the notice given by the Official Receiver to creditors and contributories of
the Company.
The
official receiver, creditors and contributories of the company may apply to the
Court for direction upon receiving notice of intention to dissolve the company[36].
The direction being sought is either to invalidate the notice or defer the date
of dissolution[37].
The application shall be based on grounds that dispute the condition of
application by the official receiver; that is that realisable assets of the
company are sufficient to cover the expenses of liquidation and that the
affairs of the company do require further investigation or any other reasonable
ground that would make the dissolution inappropriate[38]. The applicant who receives the direction must
lodge it with the registrar within 7 days of the order failure of which
attracts a penalty of Ksh. 2000 and a daily penalty of the same amount of the
failure persists[39].
iii.
Dissolution otherwise than
voluntary or early dissolution.
This
is a notice served for the purpose of removal of the Official receiver[40]
or by the Official receiver that liquidation of the company by the court is
complete[41].
This shall be then lodged with the registrar within 30 days of making of the
order. An application to alter this may be made by a person with locus standi and who must file any order
arising from this application within seven days failure of which result in an
offence similar to the one for voluntary or early dissolution[42].
OFFENCES RELATING TO
CONDUCT BEFORE AND DURING LIQUIDATION
The
Insolvency Act 2015 (Division 10, sections 498- 510) provides for certain
offences that are subject to criminal proceedings that may arise in the course
of dealing with liquidators. This may be before or during the process of
liquidation. The parties that may be liable for such offences according to the
Act are: An officer or former officer of a company that is in liquidation, a
person who is or has acted as a liquidator of such a company, a person who has
been concerned in the promotion, formation or management of such a company. The
offences highlighted are as follows:
a) Offences
Involving Commission of Fraudulent Acts in Anticipation of Liquidation
This offence covers fraudulent
acts ranging from concealing any part of a company’s property, to concealing,
destroying, mutilating, or falsifying any document affecting or relating to the
company’s affairs or property. This is as regards the twelve month duration
immediately preceding the commencement of liquidation of the company.
b) Offences
Involving Transactions to Defraud Creditors of a Company in Liquidation
Liability
under this offence entails the following acts where an officer:
(i)
Has made or caused to be made a gift or transfer of, or charge on, or has
caused or connived at the levying of execution against, the company's property;
or
(ii)
Has concealed or removed any part of the company's property since, or within
the two months preceding, the date of any unsatisfied judgment or order for the
payment of money obtained against the company
(c)
Offences Involving Misconduct Committed in the Course of Liquidation of
a Company
(d) Offence
to Falsify Documents in Relation to a Company in Liquidation
(e) Offence
to Make Material Omission from Statement Relating to Financial Position of
Company in Liquidation
(f) Offence
to Make False Representations to Creditors of Company in Liquidation
Furthermore,
the Act provides for certain powers of the court to make orders: against
delinquent directors, officers of the company and others found to have
participated in fraudulent trading by companies in liquidation among others.
The court may order the aforementioned to repay, restore or account for the
money, property or any part of it with interest at a rate of the courts choice.
On
the discovery of any of the mentioned offences, the Act provides for the
liquidator to apply for an order causing such persons to be disqualified from:
Acting as a director of a company or as a partner in a limited liability
partnership, being/acting as a liquidator of a company or limited liability
partnership, being /acting as a supervisor of a voluntary arrangement approved
by a company or a limited liability partnership or even in any way directly or
indirectly being concerned in the promotion, formation or management of a
company.
It
is important to note that the defenses available to those accused of
involvement in the aforementioned offences are: To prove that the accused had
no intention to defraud or to prove that the accused had no intent to conceal
the state of affairs of the company or to defeat the law.
LIQUIDATION
OF UNREGISTERED COMPANIES
Meaning of an
Unregistered Company
An unregistered company
includes any company other than a company registered in the Companies Act 2015.[43]
An unregistered company may be liquidated as a registered company that is
through compulsory liquidation otherwise liquidation by court order.[44]
However voluntary liquidation as in the cased of liquidation of registered
companies does not apply to unregistered companies.[45]
Circumstances under
which an unregistered can be liquidated
An unregistered company
can be liquidated in the following scenarios[46]:
1.
Where the company has been dissolved,
ceased to carry on business or is carrying on business only for the purpose of
liquidating its affairs.
2.
If the company is unable to pay its
debts
3.
If the Court is of the opinion that it is
just and equitable for the company to be liquidated.
Situations in which an
unregistered company is unable to pay its debts[47]
1.
If there is a creditor to which the
company owes an amount exceeding Ksh. 75,000 and the creditor has served in the
appropriate manner recognized under the law, a written demand requiring the
company to pay the amount due and the company has failed to pay, secure or
compound the amount to the creditor’s satisfaction within 21 days after notice
was served. The amount, 75,000, is subject alteration by increase or decrease
as per the insolvency regulations. However no alteration affects any case
determined before the alteration took effect.[48]
2.
An unregistered company is also unable
to pay its debts if legal proceedings have been brought against any member of
the company for the a debt or demand due or claimed to be due from the company
and notice of the bringing of proceedings have been served and 21 days after
service, the company has not paid, secured or compounded for the debt or
demand, obtained a stay to the proceedings or indemnified the defendant to the
defendant’s reasonable satisfaction against the proceedings or any costs
incurred by him or her in relation to the debt.[49]
3.
If under a judgment, decree or order by
a court an execution or other process is issued in favor of the creditor
against the company or any of its members and such judgment, order or decree is
returned unsatisfied or if it is proved to the Court that the company is unable
to pay its debts as they fall due.[50]
4.
If it is proved to the satisfaction of
the court that the value of the company’s assets is less than the amount of its
liabilities taking into account its contingent and prospective liabilities.
Companies incorporated
outside Kenya.[51]
If a company
incorporated outside Kenya carries on business in Kenya and has ceased to carry
on business in the country where it was registered/ incorporated, it can be
liquidated as an unregistered company under the Insolvency Act 2015. This
provision also applies where the company has been dissolved or ceased to exist
in the country in which it was incorporated.
Contributories in
liquidation of unregistered companies.[52]
A contributory is each
person who is liable to pay or contribute to the payment of;
1.
Any debt or liability of the company
2.
Any amount for the adjustment of the
rights of members among themselves
3.
Expenses of liquidating of the company
Each contributory is
liable to contribute to the company’s assets all due from them in respect of
their liability.
Power of the Court to
stay or restrain proceedings.[53]
A creditor may make an
application to stay or restrain legal proceedings against a contributory of an
unregistered company after the application for liquidation has been made but
before the making of a liquidation order is extended by the Court.
Actions stayed on
Liquidation order.[54]
Once a liquidation
order has been made, no legal proceedings may be begun or continued against a
contributory in respect of any debt of the company except by the approval of
and subject to the terms of the court.
Conclusion: Cumulative
Provisions.[55]
The provisions of the
Act on liquidation of an unregistered company are cumulative or in addition to
those on liquidation of registered companies by court order(compulsory
liquidation). Furthermore, a court liquidator may exercise e his or her powers
in liquidating unregistered companies as he or she would in liquidation of
registered companies.
[2]
Ibid
[4]
Ibid
[5]
Sec 462(4)(a) Insolvency Act 2015
[6]
Sec 462(4)(b) Insolvency Act 2015
[7]
Sec 462(4)(c) Insolvency Act 2015
[8]
Sec 462(5) Insolvency Act 2015
[9]
Sec 463(2)(a) Insolvency Act 2015
[10]
Sec 463(2)(b) Insolvency Act 2015
[11]
Sec 463(2)(c) Insolvency Act 2015
[12]
Sec 471(1) Insolvency Act 2015
[13]
Sec 476(1) Insolvency Act 2015
[14]
Sec 484 Insolvency Act 2015
[15]
Sec 489 Insolvency Act 2015
[16]
Third Schedule Part 1(1) Insolvency Act 2015
[17]
Third Schedule Part 1(2) Insolvency Act 2015
[18]
Third Schedule 4(1) Insolvency Act 2015
[19]
Third Schedule part 2(6) Insolvency Act 2015
[20]
Third Schedule part 2(7) Insolvency Act 2015
[21]
Third Schedule part 3(8) Insolvency Act 2015
[22] Third
Schedule part 3(13) Insolvency Act 2015
[23]
Divison 9, Insolvency Act, 2015, Kenya.
[24]
See section 402 0r 414 of the Insolvency Act 2015.
[25]
The registrar in this case is the registrar of companies within the meaning of
the Companies Act, Cap 468 of the Laws of Kenya.
[26]
Insolvency Act of Kenya,2015; Section 494
(1).
[27]
Ibid section 494 (2) read together with (3).
[28]
Ibid section 494 (4) read together with (5).
[29]
Ibid section 494 (6).
[30]
bid section 494 (7).
[31]
Companies Act, Cap 468 of the Laws of Kenya.
[32] The
insolvency Act of Kenya, 2015; section 495 (1).
[33]
Ibid section 495 (2).
[34]
Ibid section 495 (3) read together with (4).
[35]
Ibid section 495 (5) read together with (6).
[36]
Ibid section 496 (1).
[37]
bid section 496 (3).
[38]
bid section 496 (2).
[39]
bid section 496 (4) read together with (5) and (6).
[40]
Ibid section 468 (9).
[41]
Ibid section 497 (1).
[42]
Ibid section 497 (2), (3), (4), (5),
(6).
[43]
Insolvency Act 2015 Part VII s. 512
[44]
Insolvency Act 2015 s. 513
[45]
Ibid s. 512(2)
[46]
Ibid s.514(1)
[47]
Ibid s. 514(2)
[48]
Ibid s. 514(3)
[49]
Ibid s.514(4)
[50]
Ibid s.514(5)
[51]
Ibid s.515
[52]
Ibid s.516
[53]
Ibid s.517
[54]
Ibid s.518
[55]
Ibid s.519
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