Page 332 - DMGT407Corporate and Business Laws

Unit 14: Winding up and Dissolution of a Company

Nature of Liability of Contributory (s. 429) Notes

The liability of a contributory shall create a debt accruing due from him at the time when his
liability commences but is payable at times specified in calls made on him.
The nature of the liability of a contributory is ex lege and not ex contractu. It means that the
liability of a contributory arises by the fact that his name appears in the register of members;
and it does not arise as a result of the contract of membership with the company. Thus, where a
member’s calls are in arrears for more than three years, the debt is time-barred and the company
cannot recover the amount of the call from him. But once the winding up commences, the
liquidator can recover the same amount from the member, though the company could not do so
under the Limitation Act. The liquidator has a fresh cause of action as time, it is said, does not run
against the liquidator. Thus, once winding up commences, s. 429 imposes a new liability on the
members.

Example: A Ltd. was wound up with effect from 15 March, 2008 by an order of the court.
Mr. B, who ceased to be a member of the company from 1 June, 2007, has received a notice from
the liquidator that he should deposit a sum of ` 5,000 as his contribution towards the liability on
the shares previously held by him.
Mr. B is a past member since one year has not elapsed before the commencement of the winding
up. Therefore he is a contributory. He will be liable provided the other two conditions given in
s. 426 are satisfied.

Self Assessment

Fill in the blanks:
1. ………………means every person liable to contribute to the assets of a company in the
event of its being wound up.
2. The liability of a contributory arises by the fact that his name appears in the register of
members; and it does not arise as a result of the ………………………with the company.
3. If a contributory dies either before or after he has been placed on the list of contributories,
his ……………………….shall be liable in due course of administration, to contribute to
the assets.

14.2 Modes of Winding up (S. 425)

A company may be wound up in any of the following three ways:
(a) Compulsory winding up under an order of the court.

(b) Voluntary winding up.
(c) Voluntary winding up under the supervision of the court.

14.2.1 Winding up by the Court

Grounds for Compulsory Winding up [s.433(3)]
A company may be wound up by the court on the following grounds:
1. Special resolution: The company may, by special resolution, resolve that it be wound up
by the court. The resolution may be passed for any cause whatsoever. However, the court

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