WINDING UP OF COMPANIES UNDER THE OHADA UNIFORM ACT
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The methodology for winding up a company can be initiated intentionally by the shareholders or creditors or by a Tribunal for a variety of reasons, including the conclusion of business, misfortune, bankruptcy, the passing endlessly of promoters, and so on. In this article, we’ll look at the process of deliberately winding up a business.
When a winding-up application is filed, the court has the option of either dismissing it or making an interim request, depending on what the court deems appropriate. It can even appoint a temporary liquidator for the company until the winding up order is completed.
It can even appoint a temporary liquidator for the company until the winding up order is completed. It may even make a request for free or low-cost winding up. It is a process in which the company’s assets are directed to the benefit of its members and creditors. The person in charge of directing the benefits and liabilities is known as the Liquidator.
1.1 Background to The Study
Liquidation is the process in accounting by which a company is brought to an end in Cameroon. The assets and property of the company are redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation.
The process of liquidation also arises when customs, an authority or agency in a country responsible for collecting and safeguarding customs duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry.
Liquidation may either be compulsory (sometimes referred to as a creditors’ liquidation following bankruptcy, which may result in the court creating a “liquidation trust”) or voluntary (sometimes referred to as a shareholders’ liquidation, although some voluntary liquidations are controlled by the creditors).
The term “liquidation” is also sometimes used informally to describe a company seeking to divest of some of its assets. For instance, a retail chain may wish to close some of its stores. For efficiency’s sake, it will often sell these at a discount to a company specializing in real estate liquidation instead of becoming involved in an area it may lack sufficient expertise in to operate with maximum profitability.
The parties which are entitled by law to petition for the compulsory liquidation of a company vary from jurisdiction to jurisdiction, but generally, a petition may be lodged with the court for the compulsory liquidation of a company by:
- The company itself
- Any creditor which establishes a prima facie case
- Contributories: Those shareholders be required to contribute to the company’s assets on liquidation
- A minister, usually the one responsible for competition and business
- An official receiver
The grounds upon which an entity can apply to the court for an order of compulsory liquidation also vary between jurisdictions, but normally include:
- The company has so resolved
- The company was incorporated as a corporation and has not been issued with a trading certificate (or equivalent) within 12 months of registration.
- It is an “old public company” (i.e. one that has not re-registered as a public company or become a private company under more recent companies legislation requiring this).
- It has not commenced business within the statutorily prescribed time (normally one year) of its incorporation or has not carried on business for a statutorily prescribed amount of time.
- The number of members has fallen below the minimum prescribed by statute.
- The company is unable to pay its debts as they fall due.
- It is just and equitable to wind up the company, as for example specified by an Insolvency Act
In practice, the vast majority of compulsory winding-up applications are made less than one of the last two grounds.
An order will not generally be made if the purpose of the application is to enforce payment of a debt which is bona fide disputed.
A “just and equitable” winding-up enables the grounds to subject the strict legal rights of the shareholders to equitable considerations. It can take account of personal relationships of mutual trust and confidence in small parties, particularly, for example, where there is a breach of an understanding that all of the members may participate in the business, or of an implied obligation to participate in management. Order might be made where the majority shareholders deprive the minority of their right to appoint and remove their own director.
When overwhelming financial difficulties make it impossible for a company to continue operations, a corporation dissolution may be the only valid solution. The company assets and debts are tallied, proper financial reports are filed, and the company is dissolved by submitting corporate dissolution or bankruptcy forms. The government records this information and then the company ceases to be a legal entity. Debts are handled according to legal terms and assets are sold or auctioned off to settle these matters.
In the case of total destruction or loss of property, which may happen as a result of a natural or man-made disaster, a company may choose to go through the process of corporation dissolution. Once damages are assessed and insurance settlements are received by the owners of the company, the corporate dissolution process eliminates the business entity. This protects the owners from further damages and gives the owners a chance to start over as a new company if they desire.
There are times when company dissolution is caused by severe internal disagreements among corporate leaders. This can be the case when a company changes direction, is being mismanaged or experiences the breakdown of leadership for various reasons. A corporate dissolution may be the only solution to settling disputes and restructuring the company so that all benefit in the long term.
In a more positive sense, many times a company dissolution is caused when a company decides to sell to an investor or to a competitor. By making a sound business decision to sell the company and all its assets to another company, a corporation may undergo a merger or an acquisitions process. The company that is sold dissolves its right to do business independently and the seller loses some or all of the ownership responsibilities. This is often a good alternative to closing down a business completely or filing bankruptcy in times of financial need. Corporate dissolution that is handled in this manner keeps the company operating but under the ownership of another entity that has the financial means to do so.
1.2 Statement Of The Research Problem
A company’s shareholders or partners may trigger a voluntary winding up, usually by the passage of a resolution. If the company is insolvent, the shareholders may trigger a winding-up to avoid bankruptcy and, in some cases, personal liability for the company’s debts. Even if it is solvent, the shareholders may feel their objectives have been met and it is time to cease operations and distribute company assets.
In other cases, market situations may paint a bleak outlook for the business. If the stakeholders decide the company will face insurmountable challenges, they may call for a resolution to wind up the business. A subsidiary also may be wound up, usually because of its diminishing prospects or its inadequate contribution to the parent company’s line. But unfortunately, sometimes problems may arise due to procedural defects, order of settlement, and many others.
Again there are different types of winding up and the law is complicated because each time of winding up has its own procedure.
It is based on the foregoing that this researcher has embarked on this research to discover the problems arising due to the winding up of a company and to make policy recommendations that shall help in solving the problems highlighted.
1.3 Research Question
- How are insolvency and liquidation procedures carried out?
- What is the procedure for winding up?
- What is the role of the liquidator?
- What policy recommendations can be made to address the issues raised?
1.4 Research Objective
This research has both general and specific objectives;
1.4.1 General objective
To critically examine the concept of dissolution of a company
1.4.2 Specific objectives
- To discuss insolvency and liquidation procedures.
- To examine winding-up procedure.
- To discuss the role of the liquidator.
- To make recommendations to address problems raised