Clause (a) of sub-section (1) of section 271 provided that a company can be wound up by the tribunal if it is unable to pay its debts. Companies Act, 2013 New rules of the game 3 Message The current economic and regulatory environment in India is on the threshold of a major recast. By LexCounsel Law Offices on January 30th, 2020. unsatisfied in whole or in part; or Posted in Asia Pacific | Legal Updates. 229 of the series of editorials written by the author on corporate laws {including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.} 394 of the Companies Act, 1956. One of the most notable changes was the removal of the inability to pay debts as a ground to wind up a company. The expression ‘unable to pay its debts’ has to be taken in the commercial sense of being unable to meet current demands though the company may be otherwise solvent 6. Take a look at some weird laws from around the world! Where there was a complicated dispute between parties which involved a detailed analysis of the financial liability, if any, of the company, a petition to wind up the company was held to be not proper. The suo motu power to Tribunal to order a winding up if the company is unable to pay its debts continues to exist under the new law. Shall the company proceed as above under the Companies Act, 2013? Subsequent to this agreement, dispute arose between the two companies regarding the payment of the commission. (d) if the Tribunal has ordered the winding up of the company under Chapter XIX; Circumstances in Which Company May be Wound Up by Tribunal. It may also have other economic and social ramifications. Inability to Pay Debts. In the contingency that such payments were not received before the cut-off date, it was decided that IBA will pay a proportion of the total value of all payments received by it to IDS. (a)if a creditor, by assignment or otherwise, to whom the company is The Court held that a dispute would be substantial and bona fide if it is not spurious, speculative, illusory or misconceived. If the Company Court is satisfied that the debt upon which a petition for winding up is founded is a hotly contested debt and also doubtful, it should not entertain such a petition. This is article no. 186 of the Companies Act, as amended (“CA”). twenty-one days after the receipt of such demand or to provide adequate conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the (1) A company may, on a petition under section 272, be wound up by the Tribunal,— In case where a creditor complains that the company is unable to pay its debts and as such the presumption is available under Section 434 (1) (a) if the company is indebted in a sum exceeding one lakh rupees and company is unable to pay for three weeks after the demand is made. misfeasance or misconduct in connection therewith and that it is proper In the question that whether the claim by the appellant that it is commercially solvent is enough to reject the petition for winding up, the Court held that an examination of the company’s solvency may be a useful aid in determining whether the refusal to pay debt is a result of a bona fide dispute as to the liability or whether it reflects an inability to pay. The regulators of financial service providers could have filed a winding-up petition against insolvent FSPs, but the provisions of section 271 of the Companies Act has been amended by the IBC 2016 deleting “inability to pay debts by a company” as a ground for insolvency petition. (c) if it is proved to the satisfaction of the Tribunal that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Tribunal shall take into account the contingent and prospective liabilities of the company. (b) if any execution or other process issued on a decree or order of any financial statements or annual returns for immediately preceding five The Company Court, while exercising its powers under Sections 433 and 434 of the Companies Act, 1956 would not be in a position to decide who was at fault in not complying with the terms and conditions of the two documents. (b) if the company has, by special resolution, resolved that the company be wound up by the Tribunal; In substances, the Scheme remains the same as the substituted 1956 Act, but there are quite a few interesting deviations from ... company is unable to pay its debts continues to exist under The company has by special resolution resolved that the company be wound up by the Tribunal. If the company is unable to pay its debts, and f. If the court is of the opinion that, the company be wound up (due to mismanagement, financial unsoundness, illegal operations, etc.) However, the statutory provisions in terms of which a company or close corporation is deemed to be unable to pay its debts (as contained in section 344 of the Companies Act of 1973) no longer apply in relation to the winding up of a company or close corporation on the grounds that it is insolvent. 570. Be it enacted by the President with the advice and consent of the Parliament of Singapore, as follows: (a) if the company is unable to pay its debts; (b) if the company has, by special resolution, resolved that the company be wound up by the Tribunal; The fact that the liabilities exceed the assets does not … The Pay Something for Nothing” proposition. There have been several instances where the jurisdiction of the Company Court has been abused by filing of winding up petitions to pressurize companies to pay debts which are substantially disputed and the Courts have been very casual in issuing notices and ordering publication in the newspapers which may attract adverse publicity. For the purposes of this Act, a company shall be deemed to be unable to pay its debts -. RELEVANT PARAGRAPH. It held that such a dispute can only be adjudicated after a detailed examination of evidence and also interpretation of various terms and conditions of the deed of settlement and the compromise entered into between the parties. The parties, therefore, are locked up in lis before this Court and the central point to be resolved is whether there exists a “debt” within the provisions of Companies Act and whether the company could be deemed to be “unable to pay” as required under Section 434 of the Companies Act. Inability to pay debts – A company is deemed to be unable to pay the debts under Section 271 (2) of the Companies Act, 2013 if a creditor to whom company has to pay an amount exceeding Rs. However, before coming to such a conclusion, it is expected to go into the causes of refusal by a company to pay and also to ascertain that the company’s refusal is supported by a reasonable cause or a bona fide dispute, however, such dispute can only be adjudicated by a trial or a civil court. What is an old debt? Interpretation by the Federal Court of the word ‘and’ in s 223 of the old Companies Act 1965, as ‘disjunctively’ instead of the usual ‘conjunctively’, and now in light of the new section 467 the Companies Act 2016. Winding up on inability to pay debts Section 271(1)(a) of 2013 Act which dealt with the winding up by Tribunal on account of inability to pay debts has been omitted by Section 255 of the Code. Whether the respondent is unable to pay debts Section 69 of the Close Corporation Act provides as follows: “ (Subsection 1) For the purposes of section 68 (1) (c) repealed by section 224 (2) of the New Companies Act 71 of 2008) a corporation shall be deemed to be unable to pay its pay is debts if – Further, under the Act, 2013 … In the year 2013, the Parliament passed Companies Act, 2013 which seeks to repeal 1956 Act. 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