One of the tasks of a liquidator is to divide the company`s assets among those persons entitled to them.
If the company is solvent, these persons are creditors and members
Creditors are paid first, then the surplus is distributed among the members
If the company wound up is insolvent, only the creditors are entitled to share its assets.
1) Proof Of Debts
Creditors must prove their debts in order to have any entitlements.
In the case of solvent companies, s. 291(1) determines which debts are admissible to be proven against the company.( including all debts and claims against the company)
The provable debts under this section too include the sums such as damages a person may be entitled to against the company in an action which has not yet been decided.
If the company is insolvent, the provable debts are determined by reference to the provisions of the Bankruptcy Act 1967, the provisions of which are similar but not identical to s. 291(1).
One of the differences is that a creditor`s claim for damages against the company is confined.
Case of insolvent companies, damages arising from a breach of contract,promise or breach of trust. Only where the company being wound up is solvent, can a creditor prove as yet undetermined damages arising from claims in tort.
The amount of debt is generally computed as at the commencement of the winding up. If the debts includes interest, the creditor is only entitled to prove for interest due as at the commencement of winding up.
Not all debts are provable and hence are not repaid. Unprovable debts include debts which are unenforceable because they are based on illegal transactions.
The procedure for proving debts is governed by the Companies ( Winding Up) Rules 1972.
The liquidator fixes the time within which creditors must prove their debts. Notice must be given to the creditors of the time and the fixing of the time advertised.
All creditors of the company must prove his or her debts. The formal proof of debt contains particular of the debt and is made on Sch 1, Form 55. ( except proof of debts in respect of wages, under Sch 1, Form 56.)
The liquidator must deal with a formal proof of debt within 28 days after receiving it or such further period as the court allows ( Rule 98)
If a proof of debt is rejected,the liquidator must notify the creditor within 7 days, supplying the grounds for the rejection in the maaner of Sch 1, Form 59.
Both a creditor or a contributory can appeal from the liquidator`s decision to the court. (s.279)
If there are sufficient funds, a creditor whose proof of debt is admitted is then entitled to be repaid. Such payments are referred to as dividends.
If there is insufficient funds to pay all debts, creditors are paid a proportion of their debts in accordance with priorities…( TO BE CONTINUED)