21 Feb Dissolving a Company: What does it mean and how is it done?
Many countries around the world continue to grapple with the effects of the Covid-19 pandemic, which has brought more than its fair share of challenges, Trinidad and Tobago (‘T&T’) being no exception. Private limited liability companies operating within the jurisdiction have faced continuous operational challenges which threaten the viability of some companies. These operational challenges have resulted in the closure or dissolution of numerous private limited liability companies in T&T.
This Article will briefly explore the circumstances and methods by which private limited liability companies in T&T may be dissolved.
Why are Companies Dissolved?
The reason for winding-up or dissolving a company can typically be due to the company being unable to pay its debts. Dissolutions can also occur due to shareholders’ desire for the company to cease carrying on business and for its assets, after payment of all liabilities, to be distributed among the shareholders.
During the winding up process, the assets of the company are realized, the debts paid, and the surplus of the realized assets (if any) are distributed to the shareholder(s) of the company in proportion of their shareholding.
The reason for dissolving a company will inform the method by which the Company may be dissolved.
How are Companies Dissolved?
The Companies Act of T&T Chap. 81:01 (the ‘Companies Act’) provides for two overarching modes of dissolution or winding up, namely:
- Winding Up by the Court (i.e. Compulsory Winding Up); and
- Voluntary Winding Up.
Winding Up by the Court
A company may only be wound up by the Court in certain circumstances and upon the requisite petition being made. Under the Companies Act, a company may be wound up by the Court if: —
(a) the company has by special resolution resolved that the company be wound up by the Court;
(b) the company does not commence its business within a year from its incorporation, or suspends its business for an entire year;
(c) the company is unable to pay its debts;
(d) an inspector has reported that he is of the opinion: —
(i) that the company cannot pay its debts and should be wound up; or
(ii) that it is in the interests of the public or of the shareholders or of the creditors that the company should be wound up; or
(e) the Court is of the opinion that it is just and equitable that the company should be wound up.
For the purpose of a compulsory winding up, a company is deemed to be unable to pay its debts if:
- following the demand from a creditor, the company is unable to or neglects to pay a debt exceeding the sum of $5,000 within 3 weeks or to secure or compound the debt to the reasonable satisfaction of the creditor;
- the execution (or other process) issued on a judgement of any Court in favor of a creditor of the company is returned unsatisfied – whether in whole or in part; or
- it is proved to the satisfaction of the Court that the company is unable to pay its debts, taking into account the contingent and prospective liabilities of the company
Who can petition the Court?
An application for the winding up of a company may be presented by:
- the company;
- a creditor of the company;
- a contributory (a person liable to contribute to the assets of the company in the event of it being wound up);
- the trustee in bankruptcy to, or the personal representative of, a creditor or contributory;
- any two or more of the parties referred to above.
Winding Up Order
On hearing a winding up petition, the Court may: dismiss it, adjourn the hearing conditionally or unconditionally, make any interim order or make any other order that it thinks fit.
That said, the Court shall not refuse to make a winding up order for the sole reason that the assets of the company have been mortgaged to an amount equal to or in excess of those assets, or that the company has no assets.
In the event a winding up order is granted, a liquidator is appointed by the Court to administer the affairs of the company. It is the main responsibility of the liquidator to secure that the assets of the company are realized and distributed to the company’s creditors, and in the event of a surplus, distributed to the shareholders. A copy of the winding up order is required to be lodged by the company, with the Registrar, who shall make an entry thereof in his records relating to the company.
Completion of Winding Up by the Court
When the affairs of a company have been completely wound up, the Court shall make an order to this effect. The company is deemed to be dissolved from the date of this order.
Voluntary Winding Up
Voluntary winding up may occur in the following circumstances:
- when the period (if any) fixed for the duration of the company by its articles expires;
- when the event (if any) on the occurrence of which its articles provide that the company is to be dissolved occurs;
- if a general meeting so resolves by special resolution; or
- if the company resolves by ordinary resolution to the effect that it cannot by reason of its liabilities continue its business, and that it is advisable to wind up.
A voluntary winding up may be either:
- a members’ voluntary winding up (‘Members’ Winding Up’); or
- a creditors’ voluntary winding up (‘Creditors’ Winding Up’)
The main distinction between the modes of voluntary winding up being that a Members’ Winding Up is conducted only when a company is solvent (the directors of the company are required to make a statutory declaration to this effect) whereas a Creditors’ Winding Up is applicable to companies which are insolvent.
Members’ Winding Up
Where it is proposed to wind up a company voluntarily, the directors of the company are required to make a declaration of solvency to the extent that they have made a full inquiry into the affairs of the company and are of the opinion that the company will be able to pay its debts in full within a specified period, not in excess of 12 months from the commencement of the winding up. The declaration of solvency must be accompanied by a statement of the company’s assets and liabilities at the latest practicable date before it is made.
Following the declaration of solvency, the shareholders, by special resolution, resolve to wind up the company. This resolution must be made and filed at the Registry within 5 weeks of the date of the declaration solvency. When resolving to wind up the company, the shareholders also appoint a liquidator who is tasked with realizing the assets of the company, satisfying outstanding debts and distributing the surplus to the shareholders.
Creditors’ Winding Up
Where no statutory declaration of solvency on behalf of the directors is filed with the Registrar, the voluntary winding up is classified as a Creditors’ Winding Up.
In the event of a Creditors’ Winding Up, the company is required to summon a meeting of its creditors. At said meeting, the directors are required to provide a full statement of the position of the company’s affairs together with a list of the creditors of the company and the estimated amount of their claims. A notice of the meeting of creditors is required to be advertised in the Gazette and published in a local newspaper.
The creditors and the company, at their respective meetings, may nominate a liquidator for the purpose of winding up the company’s affairs. If different persons are nominated, the person nominated by the creditors is to be appointed liquidator subject to variation by the Court. The creditors may also appoint a committee of inspection to act with the liquidator.
Completion of Voluntary Winding Up
In relation to a Members’ Winding Up, upon the completion of the winding up of the affairs of the company, the liquidator is required to make an account of the winding up illustrating how it has been conducted (inclusive of how the property of the company has been disposed) and have the said account audited. The audited account is then laid before a meeting of the company.
Within 1 week of the meeting of the company, the liquidator is required to lodge a copy of the audited account with the Registrar and make a return of the meeting held. On receiving the audited account and return, the Registrar is required to register same. The company is deemed to be dissolved on the expiration of 3 months from the date of registration of the return.
The process to mark the completion of a Creditors’ Winding Up largely mirrors the above process in relation to a Members’ Winding Up, save that for a Creditors Winding Up the liquidator is required to hold meetings of both the company and the creditors of the company for the purpose of presenting the audited accounts of the winding up.
Effect of Voluntary Winding
In case of a voluntary winding up, the company shall, from the commencement of the winding up, cease to carry on business except so far as what may be beneficial in the opinion of the liquidator for winding up. Notwithstanding this, the corporate state and powers of the company continues until it is dissolved.
While dissolution may seem like a daunting process, the Companies Act sets out the relevant requirements which must be adhered to in order to formally close (or dissolve) private limited companies in T&T. The above provides a high level overview of the methods by which a company may be dissolved and does not represent an exhaustive list of requirements.
Disclaimer: This Document Provides General Guidance Only And Nothing In This Document Constitutes Legal Advice. Should You Require Specific Assistance, Please Contact Your Attorney-At-Law.
This Article was authored by Ajay Maraj, Associate at M. Hamel-Smith & Co. Ajay can be reached at email@example.com.