A variety of companies and other organisations can be subject to the compulsory winding up procedures, including solvent and insolvent companies, as well as registered and unregistered companies. In the case of unregistered companies, there are three circumstances under which a company can be wound up:
- The company is dissolved, has ceased business, or is carrying on business simply to wind up its affairs;
- The company is unable to pay its debts;
- The court is of the opinion that it is just and equitable that the company should be wound up.
The normal winding up provisions apply to the closure of unregistered companies as they do to registered companies, although there are a few notable exceptions. The official receiver, who acts as the liquidator in all compulsory liquidations, will exercise their powers when winding up an unregistered company in the same way they would a registered company. They will report to the Secretary of State on the conduct of company directors and any criminal offences they may have committed. If directors are found to have acted incorrectly, they could be subject to fines, directorship bans and even imprisonment.
The role of ‘contributories’
One of the biggest differences between the winding up of registered and unregistered companies is the role of ‘contributories’. A contributory is a person who is liable to ‘contribute’ to the assets of a company on winding up. In most cases this tends to be shareholders who have not paid their shares in full, but it can also apply to company directors if:
- They did not fulfil their directors’ duties
- They committed an act of misconduct or broke a statutory provision
- They are a debtor of the company i.e. they have an overdrawn loan account
If the assets of the company are insufficient to meet the company’s debts, contributories will be called on to meet these debts. The will have to pay:
- Any debt or liability of the company
- Any sum for adjustment of rights of members among themselves
- Any cost, charges and expenses of winding up
If there are insufficient assets to cover the company’s debts in the liquidation of an unregistered company, a call will made on the contributories. In this case, the first job of the official receiver is to settle the list of contributories and then make sure at least some of the contributories have funds they are able to pay.
To settle the list of contributories, the official receiver will note the names and addresses of each contributory and categorise them into classes depending on the level of contributions sought. The official receiver will then send notice to the contributories advising them that they appear on the list. They will also invite them to make representations, within 21 days, as to why they should not appear on the list.
The official receiver will also check that at least some of the contributories have funds to pay. To do this they may write to each contributory and request payment proposals for their liabilities. If the official receiver believes pressure will have to be applied to make the contributories pay, a formal call for the payment can be made. If there is still no payment, the official receiver will ask the creditors of the unregistered company whether they are funds available to begin legal proceedings to recover the liabilities.