Page 331 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes individual in as much as a company cannot be made insolvent under the insolvency law. Besides,
even a solvent company may be wound up.

14.1 Provisions as Regards Contributories

Definition of contributory: The term contributory means every person liable to contribute to
the assets of a company in the event of its being wound up, and includes the holder of fully-paid
up shares.

Persons liable as contributories: The person who are contributories are mentioned in different
sections. These are:
(a) Present and past members (s. 426): The present members shall be liable up to the amount
remaining unpaid on the shares held by them. In case of a company limited by guarantee,
the liability shall be up to the amount guaranteed by each member. In case of a guarantee
company having a share capital, the members shall be liable up to the amount remaining
unpaid on the shares plus the amount guaranteed.

The past members shall be liable only if the following conditions are satisfied:
(i) If he ceases to be a member within one year before commencement of winding up.
(ii) The debts and liability relates to the period when he was the member.

(iii) If the present members fail to meet the liabilities in full.
(b) The directors/manager whose liability is unlimited (s. 427): Section 427 provides for an
unlimited liability for a present or past director or manager, in addition to his liability if
any to contribute as an ordinary member. Thus, if his liability has been made unlimited
under s. 322 or s. 323, the director or manager is liable to make further contribution as if he
were, at the commencement of the winding up, a member of an unlimited company.
However, a past director or manager shall not be liable to make such further contribution:
(i) If he has ceased to hold office for a year or upwards before the commencement of
winding up;
(ii) In respect of any debt or liability of the company contracted after he ceased to hold
office;
(iii) Unless the court deems it necessary to require the contribution in order to satisfy the
debts and liabilities of the company, and the costs, charges and expenses of the
winding up.
(c) Contributories in case of death of member (s. 430): If a contributory dies either before or
after he has been placed on the list of contributories, his legal representatives shall be
liable in due course of administration, to contribute to the assets of the company in
discharge of his liability.
If the legal representatives make default in paying any money ordered to be paid by them,
then it will be paid out of the estate of the deceased member.

(d) Contributories in case of insolvency of member (s. 431): If a contributory is adjudged
insolvent, either before or after he has been placed on the list of contributories, then his
assignees in insolvency shall be contributories.

(e) Contributories in case of winding up of a body corporate which is a member (s. 432): If a
body corporate which is a contributory is ordered to be wound up, either before or after
it has been placed on the list of contributories, then the liquidator of the body corporate
shall be a contributory.

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