Proceedings for compulsory liquidation, Business Law and Ethics

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Proceedings for Compulsory Liquidation:

When the petition is presented to the court a copy is delivered to the company in case it objects, and it is advertised so that other creditors may intervene if they wish.  At the hearing, a creditor whose debt is unpaid is likely to secure an order for compulsory liquidation (as his remedy of last resort) unless the company (paragraph 8) or opposing creditors (paragraph 9) persuade the court to dismiss the petition.                                     

  If the petition is presented by a member (contributory) he must show (in addition to suitable grounds for compulsory liquidation) that:

(a) the company is solvent or alternatively refuses to supply information of its financial position.  The court will not order compulsory liquidation on a member's petition if he has nothing to gain from it.  If the company is insolvent he would receive nothing since the creditors then take all the assets;

(b) he has been a registered shareholder for at least six of the 18 months up to the date of his petition.  But this rule is not applied if the petitioner acquired his shares by allotment direct from the company or by inheritance from a deceased member or if the petition is based on the number of members having fallen below two: CA s.221.

A personal representative of a deceased shareholder may petition but he must first obtain a grant of probate etc. to establish his authority to represent the estate: CA, s.216.  The trustee in bankruptcy of a bankrupt contributory may also petition on his behalf: CA, s.217.


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