INTRODUCTION
Bankruptcy is a legal status of an individual or someone who cannot pay back debts owed to creditors. Bankruptcy is mostly imposed by a court order, often initiated by the debtor. Bankruptcy is not the only legal status that an insolvent person or other entity may have, and the term bankruptcy is therefore not a synonym for insolvency. In some countries, including the United Kingdom, bankruptcy is limited to individuals, and other forms of insolvency proceedings (such as liquidation and administration) are applied to companies. A creditor can file a bankruptcy petition to the High Court against a person or persons who have failed to repay debts. Under Section 6 of the Bankruptcy Ordinance, the amount of debt in a creditor's petition must be equal to or exceed a certain amount and must be unsecured. Other than the Creditor's Bankruptcy Petition (legal action commenced by creditors), debtors can also institute bankruptcy petitions against themselves (i.e. Debtor's Bankruptcy Petition).
PROCEDURES INVOLED IN WINDING UP A COMPANY BASED ON BANKRUPTCY.
Firstly, a liquidator is appointed either by the company shareholders passing resolution or by the court making an order, then liquidator collects the assets of the company and pays creditors in order to priority. The liquidator also distributes any surplus fund to the share holders and hence the company is then formally dissolved. In Reinsurance Australia Corporation Ltd v Odyssey Re (Bermuda) Ltd (2001) 36 ACSR 348; [2000] NSWSC 1118 it was held that a debt needed to be a liquidated sum in money presently due owing and payable by one person to another. In that case Macready M referred to McPherson J’s remarks in Rothwells Ltd v Nonmark (No 100) Pty Ltd [1990] 2 Qd R 85; (1988) 13 ACLR 421 where his Honour stated that there were three ways in which a debt could arise: (i) by judgment; (ii) by deed under seal; and (iii) as the quid pro quo for a consideration that was executed.
Winding-up a company may be; a compulsory winding-up by the court; or a voluntary winding-up, being-a members' voluntary winding-up; or a creditors' voluntary winding-up. Firstly, a wind up may be done through the Application of repealed Act, that is the provisions of this Act relating to the winding-up of a company shall not apply in relation to a winding-up that was commenced before the commencement of this Act, and such a winding-up shall be continued as if this Act had not been passed.
When voluntarily winding up a company, the members, or creditors do so without interference from the court. Therefore they settle their affairs without going to court. Generally speaking, a bankruptcy case will undergo the following stages; Issuing a statutory demand for debt repayment to the debtor (if applicable), presenting a bankruptcy petition to the Court, to the Official Receiver's Office and to the debtor, next is the Court hearing, then the granting of bankruptcy order by the Court. The debtor's assets are collected and realized by the Trustee/Official Receiver, distributing the relevant proceeds and part of the debtor's income to the creditors and finally the discharge of bankruptcy order. They may, however, apply to the court for any directions, if and when necessary, take for instance; Ward and Another v Suit and Others In Re: Gurr v Zambia Airways Corporation Ltd. (51/96) [1998] ZASCA 16; [1998] 2 All SA 479 (A) (23 March 1998), Case No 51/96. Zambia Airways Corporation Ltd ('the company') was incorporated in Zambia in February 1980 and thereafter carried on business as the country's national airline. The company's aircraft flew to and from some 31 countries including South Africa where it established offices in Johannesburg. As an ‘external company' within the meaning of s 1 of the Companies Act 61 of 1973 ('the Act') it was obliged in terms of s 322 of the Act to register as such and on 11 March 1991 was issued with a certificate of registration by the Registrar of Companies. The company's financial position deteriorated and on 4 December 1994 at Lusaka, Zambia, its shareholders, acting in terms of the Companies Act of Zambia, resolved that the company be voluntarily wound-up with immediate effect. On 9 December 1994 and by virtue of a further resolution the two appellants were appointed as joint liquidators. On 31 January 1995 the second 3 respondent, who was employed by the company as a sales manager in Johannesburg and who had a claim against it for 'severance pay', launched an application in the Witwatersrand Local Division for the compulsory winding-up of the company. The application was founded on the Act and contained a full disclosure of the voluntary winding-up of the company in Zambia and the appointment of the appellants as joint liquidators. A provisional winding-up order was granted on 1 February 1995 which in the absence of opposition was made final on 28 February 1995.
When debtors (or bankrupts) fail to repay their debts and the Court has granted bankruptcy orders against them, the debtors’ assets are collected and realized (sold off and converted to cash) by a neutral person (known as the “Trustee”). This Trustee can be the Official Receiver, who is employed by the Official Receiver’s Office. The proceeds from the realization are then distributed to the creditors (persons who are owed money by the debtors) for repaying the relevant debts or part of the debts.
Furthermore, when a company is wound-up, every member at the time of the commencement of the winding-up shall be liable to contribute to the assets of the company an amount sufficient for payment of its debts and liabilities and the costs, charges and expenses of the winding-up and for the adjustment of the rights of the members among themselves. Also a sum due to any member in his capacity as a member by way of dividends or otherwise- shall not be regarded as a debt of the company payable to that member in a case of competition between himself and any other creditor not a member; and may be taken into account for the purpose of the final adjustment of the rights of the members among themselves. Compulsory winding up is an insolvency procedure that applies to companies (and partnerships) and is started by a court order - a winding-up order. A winding-up petition is presented in the High Court, normally by a creditor, stating that the company owes a sum of money and that the company cannot pay. Less frequently, the company itself, its directors or a shareholder may petition, as (in some circumstances) may an administrative receiver, an administrator, a supervisor of a voluntary arrangement, the Department, the Financial Services Authority, the chief clerk (Crown Court), a clerk of petty sessions, or the Official Receiver. A petition can still be presented even if a company is already in administrative receivership or voluntary liquidation.
PROTECTING A CREDITORS INTERESTS
In conclusion, though creditors are not regarded as the members of a company, yet the role they play in maintaining a company cannot be denied. They are the sole functionaries of the company, in one word. They provide credit to the company for running its business, as without finance a company holds no position to carry on its business for which it came into existence. By virtue of lending money by the creditors to the company, the company becomes debtor to the creditor and hence is under an obligation to take proper care of the interest of the creditors. It has been seen many a times that the company after taking money from the creditors, vanishes away without returning the due money to the creditor. Such activities render loss to the creditor. In order to curb such activities as well as to protect the rights of the creditors, there is much legislation that has been enacted by the Government. Through these legislation's, it has become possible for the creditors to claim their money back from the company. Thus, in the present time, a company that is unable to repay back the due amount to the creditors, cannot take the excuse of being insolvent. They can file lawsuits and using other legal collection techniques to collect consumer debts (i.e., debts owed by individuals) or file lawsuits and using other legal collection techniques to collect commercial debts (i.e. debts owed by businesses), they can also represent creditor's interests in a bankruptcy proceeding, foreclose homes or commercial real estate if the purchaser defaults on payment and lastly they can recover (or revendication ) secured goods (e.g., automobiles) if the purchaser defaults on payment