Page 183 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes submitted to the liquidator. Assets at realisable values and liabilities at values expected to rank
and surplus and deficiency as per List H are shown in the Statement of Affairs. The official
liquidator must call two separate meetings of creditors and shareholders to know the views on
the appointment of a ‘Committee of Inspection’. The committee so appointed should not have
more than 12 members made up of an equal number representing creditors and shareholders.
Contributories: When the winding up process of a company begins, shareholders of that
company are known as contributories. As per Section 428 of the Companies Act 1956, the term
contributory means any person liable to contribute to the assets of a company in the event of
its being wound up and includes a holder of fully paid up shares, and also any person alleged
to be contributory. All the present as well as past shareholders will be contributories. Present
shareholders/members are those whose names are included in register of company when the
company is wound up. The past shareholders are those who ceased to be the members within a
year following the commencement of winding up. Accordingly, the contributories are classified
into two lists. List ‘A’ includes the present members (even though fully paid up shareholder).
List ‘B’ includes all the past members who ceased to be members (except by death) within one
year of the winding up of the company. The past members will be called to contribute only when
the present contributories are unable to pay the liability and debts incurred by the company
while they were members of the company. If the contribution made by the ‘B’ List contributories
are more than sufficient to pay the debts which were contracted while they were members, the
balance must be returned to them. The nature of contributory’s liability after winding up is legal
and not contractual. If a person is both a contributory and a creditor of the company, he cannot
set off his debt against his liability for calls, whether the calls were made before or after the
winding up. The court may order the contributory to first pay off the debt due by him to the
company and then claim the amount due to him. Debts due from company to the contributory
will be taken at par with the other contributories and not with creditors. At the time of winding
up the liquidator of the company must distribute the surplus, if any, among contributories, in
accordance with the rights provided in the Articles of Association.
Order of Priority in Payment of Debts: After realising the amount from the sale of assets not
specifically pledged, surplus of securities from the fully secured creditors and the amount from
contributories, the liquidator must distribute in the following order:
(a) Secured creditors e.g., mortgage loans

(b) Legal charges
(c) Liquidator’s remuneration
(d) Costs and charges of winding up u/S 576 and 520
(e) Preferential creditors under Section 530
(f) Creditors having the floating charges on any assets of the company e.g., debentures
(g) Unsecured Creditors

(h) Return to Contributories
(i) Preferential Shareholders including any dividend due
(j) Equity Shareholders – balance of amount

Did u know? The nature of contributory’s liability after winding up is legal and not
contractual.
Preferential Payments: Under Section 530 of Companies Act, 1956, the following are the
preferential payment which has the priority in payment to all other debts: It must be noted that
preferential payment or preferential creditors are unsecured. These have the priority of claims
over other creditors due to law and not due to any security held by them.

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