COMPULSORY WINDING UP

In a compulsory winding-up, the court can wind up a company on a number of grounds

under the Companies Act. The most common ground is the company's inability to pay its
debts, where a creditor initiates the process by filing a winding-up petition with the court. If
a winding-up order is made, the court will appoint a liquidator to oversee the liquidation
process. Any disposition of property after the commencement of winding-up is void, unless
the court orders otherwise.

General requirements for commencing insolvency proceedings

Section 465(1) of the Companies Act provides 12 circumstances in which the court can wind
up a company. The two most widely used circumstances are when:
The company is unable to pay its debts.
It would be just and equitable to wind up the company owing to a shareholder dispute.
A company is deemed to be unable to pay its debts if any of the following conditions are
met:
The company is indebted in a sum exceeding the prescribed amount and a creditor has
served a notice on the company at its registered office giving it 21 days to pay the sum.
The execution or other process required under a judgment, decree or order from any court
is not carried out (in whole or in part).
It is proved to the satisfaction of the court that the company is unable to pay its debts.
Compulsory court-ordered winding-up is typically initiated by a creditor if the company is
unable to pay its debts. In the case of winding-up under the just and equitable ground, this
is typically initiated by at least one member of the company when the affairs of the
company have been carried out in the directors’ own interests rather than the members as
a whole, or in a manner which is unfair or unjust to members. Both processes require the
filing of a petition against the company in the High Court.

Section 432 (1) CA 2016 recognises 2 modes of winding up namely, winding up by order of
the court i.e. compulsory winding up, and voluntary winding up.
1st distinction: Mode of initiating the winding up process
CWU: According to section 432(1)(b), it is initiated by presenting a petition to wind up to the
court by the person who is entitled to do so (listed under Section 464(1) CA) *add case if
sempat – Re William Hockey, a person who is owed a debt which is unpaid by the company
on the date of application is a creditor, hence, can file petition)
2nd distinction: how the proceedings come about/the ground
The circumstances under which a court may order for a company to be wound up are set
out in section 465 from para a to para l. The relevant ground to discuss in light of the
present situation is paragraph e which is when the company is unable to pay its debt. In a
simple word, this compulsory winding up takes place when the company is insolvent and
the creditors take legal action in pursuit of the $ owed.

3rd distinction: appointment of liquidator

Can be appointed either by the company itself or by the court. Sec 476 (1) – court may
appoint an Official Receiver from the DGI’s office or an approved liquidator as an interim
liquidator Sec 477 (1) (e) – Official Receiver shall be the liquidator during any vacancy

4th distinction: The role of liquidator in winding up process

Different from VWU, the liquidator in CWU starts to play his role almost at the end of
process. Only after the court has granted a winding-up order upon application by the
petitioner, a liquidator will be appointed to wind up the company. He shall take over the
affairs of the company and proceed with winding-up. By virtue of Section 486 CA 2016, the
powers of a liquidator in winding up by order of court can be seen under the Twelfth
Schedule.