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Parshotam: New Companies Act gives true meaning to winding up

The Companies Act 2015 which comes into effect on January 1 recognises that a debtor cannot use winding up to recover money from a creditor. Prominent lawyer Subhas Parshotam, of
03 Dec 2015 10:17
Parshotam: New Companies Act gives true meaning to winding up

The Companies Act 2015 which comes into effect on January 1 recognises that a debtor cannot use winding up to recover money from a creditor.

Prominent lawyer Subhas Parshotam, of Parshotam & Co, highlighted the entire laws surrounding winding up of businesses have been overhauled and it was a completely new way of doing things.

He was speaking at the Fiji Institute of Accountants Symposium on Companies Act 2015 yesterday at the Grand Pacific Hotel in Suva.

Mr Parshotam stressed that Fiji has a very bad history when it comes to winding up of companies.

He said when legal practitioners are instructed to commence proceedings against a debtor, subject to ethical considerations, a winding up order is taken from Court.

“It is sealed, filed and that is the end of it – we never hear about the companies again,” he said.

“In my 35 years of being in practice, I think there has been only two successful liquidations where creditors actually got money when a company was wound up.

“What this Companies Act 2015 purports to do is give some meat into the winding up processes,” he said.

 

Old versus the new

Mr Parshotam said a very significant change that has taken place in the new Act is the amount of which you can take on winding up proceedings.

“Under the 1983 Act, the amount is $100. So if a creditor owes you $100, you can take out a winding up notice,” he said.

“Now the amount is $10,000. That amount is a prescribed amount so overtime that amount can change.

“Essentially it means if a company is a debtor and the debt is less than $10,000, the creditor can only file writ proceedings.

“Writ proceedings is a very long process and you cannot file winding up proceedings.”

The first theory behind this he explained is that if a debt has been incurred and it cannot be paid – you don’t blame the system – you blame yourself.

“Why did you allow this debt to be incurred when you did not carry out the proper securities and risk assessment. So the blame is yours as debtors,” he said.

Secondly, Mr Parshotam said winding up is not a debt recovery process.

“Winding up is a process which brings into question the trading of the company,” he said.

“It brings into question how the directors have conducted themselves, whether they have been trading when they were insolvent. All these things are put to the test.

“As a matter of practice, most people use winding up process to recover debt.

“But if you issue a winding up notice on a company which is vibrant, flourishing, not cash rich but can pay in six months – you end up winding the company up.

“They may not get the money. Because once the winding up order is made – that is the end of the company.”

 

What can creditors do?

Mr Parhsotam stressed a winding up notice is not a court issued document but it’s a creditor-generated document.

“If you don’t pay within 21 days, then the creditor can file proceedings in court to wind the company. So first 21 days is not court involved,” he said.

Mr Parshotam told attendees, what options are available when they are acting for a company, which has been issued with a winding up notice.

“Presently – if a creditor doesn’t want to talk to you – what do you do? You have to file writ proceedings in High Court,” he said.

“It is an expensive and a long process and you have to file an injunction with that writ.

“And when you make an application for an injunction, you have to disclose what your company’s worth is, you have to annex your balance sheet and notice of assessment.

“What this Act has done – is taken the writ away – you just make an application at short notice for an injunction for the creditor to stop taking further steps.

“It is a far quicker way with dealing with winding up notices than the current way.”

Feedback:  rachnal@fijisun.com.fj



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