ACA Assignment Part 3of3
Liquidation of Companies
Assignment 1 Part 3of3
16. Who is contributory?
A contributory is a person or entity that is liable to contribute to the assets of a company in the event of its winding up. In the context of company law, a contributory refers to a shareholder of a company that is responsible for contributing to the assets of the company in the event of its liquidation.
In a winding up by the court, each member of the company is liable to contribute to its assets to the extent of the unpaid amount on the shares held by him, whether on account of calls or otherwise. The contributory is liable to pay the unpaid amount on the shares held by him/her to the liquidator.
The contributory also includes any past or present shareholder who has agreed to take or has taken shares, and any person who, at any time, was a member of the company, whether he has agreed to become or not. The contributory is also liable to pay any calls made after the date of his becoming a member and before the commencement of the winding up.
17. Who is list “A” contributory and list “b” contributory?
In the context of company liquidation, "List A" contributories and "List B" contributories refer to different classes of shareholders who are liable to contribute to the assets of a company in the event of its winding up.
- List A contributories: List A contributories are those shareholders who have fully paid-up shares. They are liable to contribute to the assets of the company in the event of its winding up to the extent of the unpaid amount on the shares held by them.
- List B contributories: List B contributories are those shareholders who have unpaid shares. They are liable to contribute to the assets of the company in the event of its winding up to the extent of the unpaid amount on the shares held by them.
List A contributories are considered to have a higher priority than List B contributories in terms of their liability to contribute to the assets of the company. List A contributories are paid before List B contributories.
18. Methods or modes of winding up.
In the context of company law, winding up refers to the process of bringing a company's existence to an end and distributing its assets among its creditors and shareholders. There are several methods or modes of winding up a company, including:
- Compulsory winding up by the court: Compulsory winding up by the court is a process in which the court orders the liquidation of a company on the grounds that it is unable to pay its debts or is otherwise insolvent. In this case, the court will appoint a liquidator to collect and realize the assets of the company and to distribute them among the creditors and shareholders.
- Voluntary winding up: a. Members voluntary winding up: This is a process in which the members of the company, through a special resolution, decide to wind up the company and appoint a liquidator. This process is usually initiated when the company is solvent and able to pay its debts in full. b. Creditors voluntary winding up: This is a process in which the creditors of the company, through a meeting, decide to wind up the company and appoint a liquidator. This process is usually initiated when the company is insolvent and unable to pay its debts.
- winding up subject to supervision of court: This is a process in which the winding up of a company is carried out under the supervision of the court, but the company's shareholders or creditors initiate the process voluntarily. This process is usually used when there are disputes among shareholders or creditors and the court is needed to supervise the liquidation process to ensure fairness and compliance with the laws and regulations.
19. What is statement of affairs?
A statement of affairs is a document that provides a detailed overview of a company's financial position at a specific point in time, usually at the beginning of the liquidation process. It contains a detailed list of the company's assets and liabilities, as well as information about its shareholders and creditors.
A statement of affairs typically includes the following information:
- Details of the company, including its name, registration number, and registered office address.
- A summary of the company's financial position, including its assets, liabilities, and net worth.
- A list of the company's creditors, including secured creditors, preferential creditors, and unsecured creditors, along with the amounts owed to each.
- A list of the company's shareholders, including the number and class of shares held by each shareholder.
- A statement of any contingent liabilities or potential claims against the company.
- A statement of any unusual transactions or events that may have affected the company's financial position.
The statement of affairs is prepared by the liquidator and it's an important document that helps the liquidator to understand the company's financial position and to make decisions on how to distribute assets among the creditors and shareholders. It's important to note that the statement of affairs should be prepared in accordance with the laws and regulations and should be accurate and complete.
20. Difference between statement of affairs and balance sheet.
| On the Basis of | Statement of Affairs | Balance Sheet |
|---|---|---|
| Purpose | To provide a detailed overview of a company's financial position at a specific point in time | To present a company's financial position on a specific date, typically at the end of an accounting period |
| Prepared By | Liquidator | Accountant or Company Secretary |
| Time Period | Specific point in time, usually at the beginning of the liquidation process | End of an accounting period |
| Assets | Includes all assets, including those that may not be included in the balance sheet | Includes only assets that are expected to generate future economic benefits |
| Liabilities | Includes all liabilities, including those that may not be included in the balance sheet | Includes only liabilities that are expected to be settled in the normal course of business |
| Share holders | Includes a list of the company's shareholders, including the number and class of shares held by each shareholder | Not included |
| Creditors | Includes a list of the company's creditors, including secured creditors, preferential creditors, and unsecured creditors, along with the amounts owed to each | Not included |
| Contingent Liabilities | Includes a statement of any contingent liabilities or potential claims against the company | Not included |
| Unusual Transactions | Includes a statement of any unusual transactions or events that may have affected the company's financial position | Not included |
| Format | Not specific format | Format is typically set by accounting standards |
21. At the time of liquidation how will you treat calls in arrears?
At the time of liquidation, calls in arrears refer to unpaid amounts that shareholders owe to the company for shares that they have already been issued. The treatment of calls in arrears during liquidation will depend on the laws and regulations of the jurisdiction and the specific circumstances of the case.
Typically, in the event of liquidation, calls in arrears are treated as debts owed by the shareholders to the company. The liquidator will typically try to collect these debts and will use the proceeds to pay off the company's creditors.
If the company is solvent, the liquidator will typically try to collect the calls in arrears from the shareholders as soon as possible, before distributing any assets to other creditors or shareholders. If the company is insolvent and there are insufficient assets to pay all the creditors, the liquidator will typically treat calls in arrears as unsecured debts and will only pay them after the secured creditors and preferential creditors have been paid.
22. At the time of liquidation how will you treat arrear of preference dividend?
At the time of liquidation, arrears of preference dividends refer to unpaid dividends that are due to preference shareholders of the company.
In general, preference dividends are usually treated as a debt owed by the company to the preference shareholders, and the liquidator will typically try to collect these debts and will use the proceeds to pay off the company's creditors.
If the company is solvent, the liquidator will typically try to collect the arrears of preference dividends from the company's assets and pay them to the preference shareholders before distributing any assets to other creditors or shareholders. If the company is insolvent and there are insufficient assets to pay all the creditors, the liquidator will typically treat arrears of preference dividends as unsecured debts and will only pay them after the secured creditors and preferential creditors have been paid.
23. What are the rules regarding refund of capital amount to various classes of shareholders?
- Preference Shareholders: The refund of capital amount to preference shareholders during liquidation is governed by the terms and conditions of their preference shares. Preference shareholders are usually entitled to a fixed dividend, which is paid out of the company's profits before any dividends are paid to the equity shareholders. In case of liquidation, preference shareholders have a right to be paid their preference dividend arrears before any payment is made to the equity shareholders.
- Equity Shareholders: The refund of capital amount to equity shareholders during liquidation is governed by the provisions of the Companies Act, 2013. In case of liquidation, equity shareholders are paid after all debts and liabilities of the company have been discharged and all preferential shareholders have been paid. The equity shareholders will only be paid out of the assets remaining after all debts and liabilities have been paid.
- Calls: Calls refer to the amount of money that shareholders are required to pay the company for shares that they have been issued. In case of liquidation, calls in arrears are treated as debts owed by the shareholders to the company. The liquidator will typically try to collect these debts and will use the proceeds to pay off the company's creditors.
24. From the following particulars, prepare liquidator's final statement of accounts.
Question
Solution
| Receipts | Rs. | Payments | Rs. |
|---|---|---|---|
| Cash | 1,000 | Liquidation cost | |
| Assets Realised | 79,000 | i) Legal | - |
| ii) Liquidator's remuneration | |||
| 3% on Rs.79,000 asset realised | 2,370 | ||
| 2% on Rs. 5,000 unsecured creditors | 100 | ||
| 3% on Rs. 20,127 unsecured creditors | 403 | ||
| iii) Winding up cost | 500 | ||
| Preferential creditors | 5,000 | ||
| Debentures | |||
| Secured debentures | 50,000 | ||
| Interest Due | 1,500 | ||
| Unsecured creditors | 20,127 | ||
| 80,000 | 80,000 |
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