Introduction A company is an entity that is treated as a legal person by the government. However, it is not as easy as it seems to operate a company. There are many challenges that companies face during the course of their operations. Depending on the degree of the problem, some companies are likely to wind up. Before understanding how a company can be wound up, it is important to understand how to form a company and what types of companies exist.
Formation of a Company A company can be formed in numerous ways. To be specific, the main concentration shall be placed on formation of a company by registration. Registered companies are formed by registration under the Companies Act CAP 388. This is the most common way of forming a company. According to Section 13 of the Companies Act, There are two main types of companies; public company and private company. Private companies are divided into three different types. A private company limited by shares; a company limited by guarantee and an unlimited company.

Types of Registered Companies
A private company limited by shares, usually called a private limited company (Ltd.) has shareholders with limited liability and its shares may not be offered to the general public, unlike those of a public limited company (plc). It is a company whose liability to creditors of the company is limited to the capital originally invested, i.e. the nominal value of the shares and any premium paid in return for the issue of the shares by the company.
A private company limited by guarantee is an alternative type of corporation used primarily for non-profit organisations that require legal personality. A company limited by guarantee does not usually have a sharecapital or shareholders, but instead has members who act as guarantors. The guarantors give an undertaking to contribute a nominal amount (typically very small) in the event of the winding up of the company. Like a private company limited by shares, a company limited by guarantee must include the suffix "Limited" in its name, except in circumstances specifically excluded by law. One condition of this exclusion is that the company does not distribute profits.

Bankruptcy The Oxford English Dictionary defines Bankruptcy as completely lacking in good quality or value. Therefore a company that experiences bankruptcy lacks monetary value to be specific. It is impossible to operate the company with no money, bankruptcy will force the company to borrow money from different sources. Unfortunately, a company that is in a substantial amount of debt cannot rest the future of its operations on the debt of its creditors. Therefore, it is advisable for the company to wind up or liquidate its resources. Liquidation is the conversion of assets into cash. Upon realization of bankruptcy, the company can declare itself bankrupt. However, there is a process of declaring yourself bankrupt. Where a person who has been adjudged bankrupt in Zambia or adjudged bankrupt or insolvent in any reciprocating country and has not obtained his discharge (a) either alone or jointly with any other person obtains credit to the extent of twenty kwacha or upwards from any person without informing that person that he is an undischarged bankrupt; or (b) engages in any trade or business under a name other than that under which he was adjudged bankrupt or insolvent without disclosing to all persons with whom he enters into any business transaction the name under which he was adjudged bankrupt or insolvent; he shall be guilty of a misdemeanour.

Liquidation There are three types of liquidation: Compulsory Liquidation – In this case, creditors petition the Court to liquidate the company because they believe it to be incapable of paying its debts. One of the biggest creditors to petition the Court is HMRC when taxes are owed and government believes the company to be irreparably insolvent.
Members Voluntary Liquidation – When a company is solvent and able to pay outstanding debt, a Members Voluntary Liquidation (MVL) can be commenced. There is no court involvement in this procedure.
Creditors Voluntary Liquidation – This is perhaps the most misunderstood of the three types of liquidation processes as it would seem as though the creditors initiate the process. Sometimes wrongly referred to as a ‘Company Voluntary Liquidation,’ the first word is actually Creditors. Now then, this is a voluntary liquidation procedure initiated by the directors because a company is insolvent and unable to its debts. Usually a CVL is requested before a compulsory liquidation can be petitioned by the Court.
The only time a petition is presented is when the liquidation is a compulsory liquidation. However, the laws that govern the process are quite precise and must be carried out exactly as set forth in the Insolvency Act of 1986. There are meetings which must be held with directors and shareholders and there are adverts which must be placed in the Newspaper. The Insolvency Service recommends on their web site that a lawyer should be hired to present the petition to the Court but an Insolvency Practitioner (IP) can be contracted to oversee the liquidation procedure from the very beginning if it is to be voluntary liquidation. When the creditors appoint the liquidator, it is in their best interest to contract a licensed IP with skillfulness in liquidation.
In every liquidation process, whether voluntary or compulsory, the goal is to sell all assets and repay as many creditors as possible. For compulsory liquidation, a creditor must present a petition to the Court and request that the court order the company to enter into compulsory liquidation. Financial institutions and lenders may take this route to recover funds owed to them if they feel that it is unlikely the debts will be repaid in due course. For the liquidation application to be approved the creditor must be able to illustrate, or the court must be able to observe, that the business has been unable to make repayments on a regular basis and that the most just and equitable outcome for all parties would be to wind up the company. However, if the court finds that the petitioning party is unreasonably refraining from alternative measures then the liquidation application could be dismissed although this is very unlikely. Once the court rules to wind up the business they will appoint one or more liquidators, and an Official Receiver, who will begin the process of valuing, marketing, and selling the company’s assets. However, in a separate creditors’ meeting the creditors may decide to nominate another individual to act as the liquidator, and may also assign a supervisory liquidation committee of their own. As a business owner/director the only thing you can do once the procedure is underway is seek the guidance of an insolvency practitioner to mitigate the potential negative outcomes of compulsory liquidation.

Declaring the Company Bankrupt Once the manager and his advisers are certain there are no other options open for the business to carry on, declaring the company bankrupt involves filling out a couple of forms. The company has to petition a court; it does not have to accept you if it believes you have other options open. On the date of the order you will lose control of all your assets, both business and personal, and the receiver will decide which are to be sold to repay creditors. If your business is still running it will typically be shut down. Your bank account may be closed. For the next year there will be heavy restrictions on what you can and can’t do. And typically after a year you become a discharged bankrupt and can restart your financial life.
Creditors, though, 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 administrators 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. Previously, there were no such enactments that provide relief to the creditors whose money is being involved in a company that fails. However, numerous times it has been seen that the company after taking money from the creditors, disappeared without returning the due money to the creditor. Such activities render loss to the creditor. In order to control such activities as well as to protect the rights of the creditors, there are many legislations that have been enacted by the Government. Through these legislations, 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. In this paper we shall discuss the various ways by which protection is afforded to the creditors in a company and also look upon the various provisions that help the creditors in realising their credit. According to the Presidency Towns Act and Provincial Insolvency Act, a secured creditor means a person who holds a mortgage or charge on any of the company’s property or any part of it as security for any debt due to him from the company. A secured creditor can be asked to contribute to the expenses incurred by the liquidator in maintaining the secured assets before realization. The liability to contribute towards expenses of maintaining security would cease only when the option to surrender the security is exercised. It has been held in the case of Board of Industrial and Financial Reconstruction v. Swadeshi Mills Ltd. it was held that the secured creditor holding the first charge on the property to be responsible for paying the guards, and for protecting the property. It was further directed to the official liquidator not to appoint security guards from private agencies but to send his requisitions to Security Guards Board constituted under the Act.

An unsecured creditor is one other than the preferential creditor that does not have the benefit of any security interests in the assets of the company. The effect of the application of insolvency rules is that all unsecured creditors must provide proof of their debts and all such debts are to be paid. However, it has to be noted that the unsecured creditors, unlike the secured creditors, have to prove their debts before the liquidator and only to the satisfaction of the liquidator can claim their due amount. Claims have to be filed before the liquidator and not before any court or anywhere else. In the case of Bhagwan Das Gopal Prasad v. Ashoka Oil Products P. ltd the applicant has lodged a complaint against Rajasthan Rajya Vidhyul Prasaran Nigam Ltd. that the later has a claim against the respondent company which is frivolous. The court held that if the applicant has any objection against the claim of the Nigam, he may send his objection to Official Liquidator. But the action of the applicant to approach the court in this application is wholly unreasonable and untenable. Any person who has a claim against the company, which is ordered to be wound up by the court, has a right to lodge the claim before the Official Liquidator. It is the duty of the liquidator to decide and adjudicate upon the claim lodged by
Nigam is whether frivolous, baseless or fraudulent or dishonest. Apart from the Companies Act of 1956, the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002 also provides for the protection of the creditors. This is an Act enacted to regulate securitization and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. This Act has created provision for protection of the creditors’ interest and thereby has provided vast opportunities for the creditor to claim back their money from the debtor in a hassle free manner. Any security interest created in favour of any secured creditor may be enforced, without the interference of court or tribunal, by such creditor under this Act. Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the following rights under this Act.

Conclusion
Thus, from the discussion stated above it can be concluded that the creditors are provided with necessary protection in the present date by introducing new provisions in the existing laws as well as by introducing new legislations by the Government. Unlike in the earlier days where the creditor’s rights were not considered and protected as such, the present existing legislation has given special rights to the creditors to claim their amount back in case the company fails to repay. The rights of the creditors are given much importance as they are the person in a company that provides finance in order to help the company in smooth running of their business. Because of the role played by the creditor, the rights of the same were considered and hence effective legislations has been enacted to look into their rights. Thus, it can be said that the creditors, are accorded with proper protection by giving them their legitimate rights to claim for their interest.

References -Finch, Vanessa; “Corporate Insolvency law: Perspectives and Principles”; second edition; Cambridge University Press”; 2009

-Lundgren, K. Thor; “Liability of a Creditor in a Control Relationship with its Debtor”; volume 67, issue 3; Marquette Law Review;

-The Companies Act, 1956

-The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

-The Bankruptcy Act

-Ramaiya, A.; “Guide to the Companies Act”; Sixteenth Edition, Reprint; Wadhwa and Company, Nagpur; 2006