When the company cannot pay

1. Meera calls the board

A director who believes that the company is unable to pay its debts as they fall due must forthwith call a meeting of the board. The board considers whether to appoint a liquidator or an administrator, or to carry on the business.

If the director does not call that meeting, the company was at that time unable to pay its debts as they fell due, and the company is later placed in liquidation, the Court may order that director to be liable for the whole or part of the loss creditors suffer because the company continued to trade. The applicant is the liquidator or a creditor. Section 162 does not apply during a period that has been prescribed for that purpose. The example takes the duty as applying, which is the result whenever no such period is in force.

If the meeting is called and the board does not resolve to appoint a liquidator or an administrator, and there were no reasonable grounds for believing the company could pay its debts as they fell due, the same liability can reach the directors who did not attend and vote in favour of appointing a liquidator or an administrator.

This duty is about debts as they fall due. It is the first limb of the solvency test, used here as a trigger for the meeting. It is not the dividend test, which also asks whether assets exceed liabilities plus stated capital.

The call is on Monday, not at the annual meeting

On Monday Meera concludes that Tamarind cannot meet the Rs 300,000 loan instalment and the trade creditors as they fall due. She calls the board for Wednesday. Ravi attends. They consider a liquidator, an administrator, and carrying on. The call itself is what section 162 required of her on Monday. Waiting for the annual meeting does not satisfy “forthwith”.

The appointment and the conduct of a liquidation are the Insolvency Act 2009. The Companies Act states the directors’ duty and the shareholders’ resolution. It does not set out the liquidator’s day-to-day powers.

Companies Act, section 162.

2. The shareholders’ resolution

Where the shareholders exercise a power to put the company into liquidation, they exercise it by special resolution. That special resolution is not rescinded. At the meeting, the chairperson’s declaration that it passed is conclusive evidence unless a poll is demanded.

Meera’s 60 votes are 60 per cent of the 100 votes if both shareholders vote on a poll. That is not 75 per cent. The decisions chapter counts that special resolution, including a show of hands. The resolution to put Tamarind into liquidation fails if Ravi votes against it on the poll. If Ravi does not vote, Meera’s votes are all of the votes cast and the special resolution passes. A special resolution to put the company into liquidation cannot be rescinded.

Companies Act, section 105.

3. Removal from the register

A company is removed from the register when a notice signed by the Registrar, stating that the company is removed, is registered under the Act.

The Registrar removes a company that is an amalgamating company, other than the company that continues, when the certificate of amalgamation is issued. The Registrar also removes a company where he is satisfied that it has ceased to carry on business, has failed to pay its registration fees, has not filed its annual return, or there is no reason for it to continue to exist. Before a removal on those grounds, the Registrar gives notice to the company, notice to any person entitled to a charge registered under section 127, and notice in the Gazette.

A shareholder may request removal, if a special resolution of shareholders entitled to vote and voting has authorised that shareholder to make the request. One ground is that the company has ceased to carry on business, has paid all known creditors in full, and has distributed its surplus assets in accordance with its constitution and the Act. The request is accompanied by a written notice from the Director-General of the Mauritius Revenue Authority and, where applicable, from the Financial Services Commission, that there is no objection.

An overdue return is not removal on the same day

Tamarind has not filed its annual return and is still trading. The Registrar does not remove it on the day the return was due. He gives notice to the company, to the lender who has the registered charge, and in the Gazette. A shareholder request is a different path. It needs the special resolution, the ground that the business has stopped and the creditors and the surplus have been dealt with, and the revenue notice.

A person who knowingly makes a false statement in a document required under the Act commits an offence. The penalty is a fine not exceeding Rs 1,000,000 and imprisonment for a term not exceeding 5 years. A conviction for that offence, or for a crime involving dishonesty, bars the person for 5 years from being a director or from taking part in the management of a company, unless the Court gives leave. The person gives the Registrar not less than 14 days’ notice of the intention to apply for that leave.

A director charged with an offence in relation to a duty imposed on the board has a defence where the director proves that the board took all reasonable and proper steps to comply, or that the director did, or that the director could not reasonably have been expected to take steps to ensure the board complied.

Companies Act, sections 308, 309, 310, 331, 332 and 337.

What you should now be able to explain

Meera calls the board forthwith when she believes debts cannot be paid as they fall due. The shareholders put the company into liquidation by special resolution, and 60 votes out of 100 cast do not pass it. Removal from the register follows the Registrar’s notice, or a shareholder’s request with the revenue notice. A knowing false filing is an offence and can bar management for five years.

Next: two companies becoming one, and a compromise with creditors.