Companies Act Section 285

Companies Act, Section 285: Settlement of List of Contributories and Application of Assets

Section 285 of the Companies Act, 2013 lays down the procedures and principles that must be followed by the Tribunal after issuing a winding-up order for a company. Specifically, it deals with two critical post-liquidation actions:

The settlement of the list of contributories, i.e., persons liable to contribute to the company’s debts and obligations, and
The application of the company’s assets towards the discharge of its liabilities.
This section ensures that those who are legally accountable for the company’s obligations are clearly identified and held liable in accordance with the nature of their association with the company, and that the company’s available assets are appropriately distributed.

1. Settlement of the List of Contributories by the Tribunal

Timing and Purpose

As soon as reasonably practicable after the Tribunal passes an order for the winding up of a company, it is obligated to undertake the following actions:

Settle the list of contributories, i.e., determine who must contribute financially to the company’s liabilities,
Rectify the register of members, where necessary, in accordance with the provisions of the Act,
Direct the application of the company’s assets toward discharging its liabilities.
This process enables the Tribunal to identify those individuals or entities responsible for contributing to the company's remaining obligations and facilitates an equitable distribution of assets.

Dispensation in Certain Cases

The Tribunal may dispense with the process of settling the list of contributories if it concludes that such a step is not necessary. For example, if it appears that:

The company’s existing assets are sufficient to cover its liabilities without needing to call upon contributories, or
There is no need to adjust the rights and obligations among contributories, then the Tribunal may forego this exercise altogether in the interest of efficiency.

2. Classification of Contributories

While settling the list of contributories, the Tribunal is required to distinguish between different categories of contributories, including:

Those who are contributories in their own right i.e., they held shares or had liabilities directly connected to the company, and
Those who are contributories in a representative capacity, such as:
Legal representatives of deceased members,
Trustees or guardians holding shares on behalf of others,
Persons liable for the debts of other contributories.
This classification is necessary to ensure fairness and precision in determining the nature and extent of each individual’s liability.

3. Scope of Liability of Members and Former Members

The Tribunal must include in the list every person who is or has been a member of the company and who may be required to contribute to the company's assets. However, this inclusion is subject to several important limitations and safeguards, as outlined below:

(a) Time-based Exemption for Former Members

A person who ceased to be a member at least one year before the commencement of the winding-up proceedings shall not be held liable to contribute.

(b) Exemption for Post-Membership Liabilities

No person who has ceased to be a member is liable for any debt or liability incurred by the company after the date on which they ceased to be a member.

(c) Conditional Liability for Former Members

A former member shall only be liable to contribute if the Tribunal finds that the current members are unable to satisfy the required contributions. Thus, the burden shifts to former members only in cases of default or insufficiency among current members.

4. Nature and Extent of Liability Based on Company Type

The nature and scope of a contributory’s financial obligation also depends on the type of company structure specifically whether the company is limited by shares or limited by guarantee.

(d) Companies Limited by Shares

In the case of companies limited by shares:

A contributory’s liability is restricted to the unpaid amount on the shares held by them.
No additional contribution can be demanded beyond the unpaid portion of their subscribed capital.
(e) Companies Limited by Guarantee

In the case of companies limited by guarantee:

A member is liable to contribute only up to the amount they undertook to guarantee, i.e., as specified in the memorandum of association.
If such a company also has share capital, the member is additionally liable for any unpaid amount on the shares held, as if the company were one limited by shares.