Dissolution of a Company in Kenya
Company winding-up process in Kenya; liquidation, Dissolution, de-registration
Winding-up is the process of dissolving a company. It is, in fact, a formal procedure in which management of its affairs is taken out of the director’s hands and the assets are liquidated. The proceeds from the sale of the assets are used to repay creditors and what remains is distributed to the shareholders in accordance with their rights or otherwise. A company can also wound up when it is solvent.
While both de-registration and dissolution have the same effect of terminating the legal existence of a company, theoretically speaking, the consequences are different. When a company has dissolved, the liability of the directors, members, and officers cease to exist as opposed to de-registration where such liability does not cease to exist. The effect of dissolving a company is that property that was not distributed before the dissolution took place, vests in the state with effect from the dissolution date. The Attorney General may, however, discharge such property by issuing a notice of disclaimer of ownership of the property.
Circumstances for Dissolution of a Company in Kenya include:
- Where a company is not carrying on its business or is not in operation.
- The registrar fully believes that the affairs of the company have been fully wounded up such that the company is in liquidation.
- Where the company’s directors’ or a majority of the directors have applied to the registrar that the company be struck off the register.
Requirements needed for Dissolution of a Company in Kenya:
- Special resolution
- Minutes to the resolution
- Company annual returns
- Clearance from all charges, debentures, mortgages, and chattels of the company.
- A written application.
The process of Dissolution of a Company in Kenya is as follows:
- A special resolution must be passed by the Board of Directors of the company for its affairs to be wound up. The resolution should be constituted in the prescribed form.
- A written application is made to the registrar of companies in the prescribed form stating the intention of the company to wind up its affairs. The application should be accompanied by the resolution, minutes of the meeting where the resolution was passed and copies of all the outstanding company returns.
- Upon the satisfaction of the registrar, the application will be published in the Kenya Gazette for a period of 3 months by the registrar.
- At the pleasure of the registrar, the company shall be removed from the register of companies.
There are three circumstances that lead to Dissolution of a Company in Kenya;
- Compulsory winding up by the court.
- Voluntary Dissolution of a Company in Kenya: – Members’ voluntary winding up – Creditors’ voluntary winding up
- Winding up under the supervision of the court.
Compulsory winding up by the court
Who can petition?
- The Company itself after it has passed a special resolution.
- The creditors; any person that has a monetary or pecuniary claim against the company.
- A contributory which is any person liable to contribute to the assets of the company in the event of it being wounded up.
The court can wind up a company in the following instances:
- A special resolution passed by the company for the court to wind it up. The court in this instance has discretionary powers and may refuse to wound up the company if wounding it up is opposed to the public or the company’s interests.
- If the company has defaulted in holding a statutory meeting or in delivering the statutory report to the registrar, the court can order winding up of the company either on the petition of the registrar or on the petition of a contributory. The petition must be filed before the expiry of 14 days after the last day the statutory meeting should have been held.
- Failure to commence within one year or suspension of the business for a year without any reasonable prospects or good reasons for the delay.
- Reduction of members below the statutory minimum.
- Inability to pay debts.
- When the court is of the opinion that it is just and equitable to wound up the company. The following are circumstances in which a company can be wound up through the just and equitable clause:
- When there is a deadlock in management.
- Where it is impossible to carry on the businesses of the company except at a loss.
- The company has engaged in illegal activities.
- The purpose for which the company was formed is impossible for further pursuit.
- The minority is being disregarded or being oppressed.
Voluntary Dissolution of a Company in Kenya
This means winding up without interference by the court.
The company may wound up when it has passed an ordinary resolution, the period that is fixed by the articles for the duration of the company has expired or an even to be wound up has happened and the company has passed a special reason to wind up voluntarily.
The company can then be wounded up by:
- Members: when a declaration of the company’s solvency is made by the majority of its directors at a board meeting and are in the opinion that the company has no debts and if they have they will be able to pay the debt in full within 12 months from the winding up date.
- Creditors: here the company is presumed to be insolvent. The company then calls a meeting with its creditors who pass a resolution of winding up the company.
Winding up subject to the supervision of the court
When a company has passed a resolution to wind up voluntarily, the court may order the continuation of the winding-up subject to their supervision.
The court could also be called upon to act when there occurs a substantial dispute between the company and its creditors especially over the appointment of a liquidator.
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