HOLY KPORTORGBI GIMPA BUSINESS SCHOOL UNIT 6: LIQUIDATION HOLY KPORTORGBI GIMPA BUSINESS SCHOOL

Unit outline Session 1: What is liquidation? Session 2: Private liquidation Session 3: Dissolution Session 4: Official liquidation Session 5: Petition for a company to wind up Session 6: Winding up order

What is liquidation? Liquidation is the process of having an artificial legal entity ceasing to be. A company or corporation is an artificial person that has a perpetual succession. Just as incorporation brings the corporation into being; liquidation brings it to an end.

Liquidation, winding up and dissolution Liquidation includes both winding up and dissolution. Winding-up refers to the steps taken to have a functioning corporate entity or going concern, cease to be a corporate entity. Winding-up includes appointment of the officer (liquidator) who gathers any assets, pays any debts, and distributes any surplus in accordance with law. Dissolution is the official announcement by the Registrar that the corporate entity no longer exists and has been struck off the register and that the public has been so notified by publication in the Gazette.

Liquidation Both solvent and insolvent companies may be liquidated. Insolvent according to s.4 of Schedule 1 means that the liabilities of the corporation exceeds its assets or that it is unable to pay its debts when they fall due. The Companies Code, 1963 governs private solvent liquidation. The Bodies Corporate (Official Liquidation) Act governs insolvent liquidations.

When can you say there is a liquidation Liquidation commences with: The passing of a special resolution calling for its liquidation (s.248(2)); The presentation of a petition to the court or the Registrar to wind-up the company; and A liquidator is appointed to conduct the liquidation process.

Powers of a liquidator The liquidator assumes the powers of directors, takes control of the affairs of the corporation, collects its assets, pays the debts and then distributes any surplus to members in accordance with their rights. Section 254 of Act 179 says that on the appointment of a liquidator for the purpose of a private liquidation, all the powers of the board of directors shall vest in the liquidator and the powers and authority of every directors shall cease. The only savings in the directors powers in so far as the company in general meetings in continuance. Their powers as directors can also be exercised in the preparation of accounts and stalements.

Winding-up Once winding-up commences: On the appointment of a liquidator, all the powers of the board of directors vest in the liquidator; the directors are rendered functus officio (s.245 of Act 179). Although the company shall continue as a corporate entity until its dissolution, it shall cease to carry on business except as may be required for its beneficial winding up (s.246(2)).

Winding-up 3. The financial year of the company shall be deemed to end just before the commencement of winding up and therefore the preparation, auditing and dispatch of all statements, accounts and reports have to be done (s.249). 4. Transactions entered into within certain periods before the commencement of liquidation may be invalid on the grounds of being fraudulent preference or fraudulent conveyances.

Winding-up A fraudulent preference is where a debtor, with the dominant intention favouring or preferring one creditor over other creditors settles all or part of his debt with that preferred creditor. A fraudulent conveyance is giving property to a third party with the intention of making it difficult or impossible for creditors to be repaid.

Winding-up 5. Section 90 of Act 179 provides that if the winding up commences within 12 months of the creation of a floating charge on the undertaking or property of the company, such charge shall be invalid. However, the amounts of any cash paid to the company at the time of the creation of the charge and in consideration of the charge shall not be invalid, and the company shall be liable to repay said sums together with interest at the rate of 5% per annum.

Winding-up 6. All actions and civil proceedings against the company, other than proceedings by a secured creditor for the realization of his security, shall be stayed unless the court gives leave to proceed. 7. Attachments, distress and execution in an official liquidation that have not been completed are void. However, based on the authority of Brown v. Hoeks (Ghana) Ltd., I submit that fraud, trickery and abuse of the court’s process, will not render the attachment, distress or execution void.

Winding-up 8. Any transfer of shares shall be void 9. Some categories of creditors are given preferential rights (Class A creditors) within prescribed periods before the date of commencement of winding up.

Commencing winding up proceedings against a company