c) Execution proceedings After a winding up application has been presented, no creditor is allowed to take out or continue attachment or execution proceedings against the company.
A creditor must complete execution before the winding up application has been presented. For example, goods under a writ of seizure and sale must be seized and sold; garnishee proceedings are completed on receipt of the debt.
Reasons for winding up a company Members' voluntary winding up The company’s contributories (also known as members or shareholders) may pass a resolution that the company be wound up and that a liquidator be appointed.
The liquidation commences at the time of passing the resolution.
d) Floating charges A floating charge created within 6 months of the commencement of the winding up shall be invalid, except to the amount of cash paid to the company at the time of or subsequently to the creation of the charge, together with the interest at 5% per annum.
The floating charge shall remain invalid unless the secured creditor is able to prove that the company was solvent after the creation of the floating charge.
e) Secured creditors The rights of the secured creditor to deal or realise security over company assets are not affected by the winding up order.
The purposes of a liquidation are: Just distribution of assets When a company is being wound up, the company’s business ceases to operate and its assets and affairs are handed over to an independent liquidator whose powers, duties and functions are regulated by the Companies Act (Cap 50).
The rights of unsecured creditors over the company's assets are virtually "frozen" upon the commencement of the liquidation to avoid a further deterioration of the company's financial position and proliferation of its liabilities.
Unsecured creditors are paid on a pari passu basis, i.e. Any surplus is then distributed among the contributories of the company.
Any floating charge given by the company in the 6-month period will, unless the company was solvent immediately, be invalid except to the extent that it was given to secure new money.
Even if the floating charge is invalid, the debt will remain as an unsecured debt.