Sections 360 and 361 of the Companies Act 1997, with Schedules 9 and 10, set out who is paid, in what order, and how.
Section 360 — the preferential claims
(1) The liquidator shall pay out of the assets of the company the expenses, fees, and claims set out in Schedule 9 to the extent and in the order of priority specified in that Schedule.
(2) Without limiting Schedule 9 section 7(b), “assets” does not include assets subject to a charge unless the charge is surrendered or taken to be surrendered or redeemed under section 353.
| Tier | Claims |
|---|---|
| 1 — Sch 9 s 1, in the order listed | (a) the fees and expenses properly incurred by the liquidator in carrying out the duties and exercising the powers of liquidator, and the liquidator’s remuneration; (b) the reasonable costs of the person who applied to the Court for the liquidation, including the costs of a person appearing whose costs the Court allows; (c) the actual out-of-pocket expenses necessarily incurred by a liquidation committee |
| 2 — Sch 9 s 2 | (a) wages or salary for services rendered in the four months preceding commencement; (b) workers’ compensation accrued before commencement; (c) annual leave and long service leave payable on termination before or by reason of the liquidation; (d) amounts deducted from wages to satisfy an employee’s obligations; (e) amounts that are preferential under section 313(2) — up to K5,000 for services where a lien over records was displaced; (f) superannuation contributions made or that should have been made |
| 3 — Sch 9 s 3 | The costs of a compromise referred to in section 248(c) |
| 4 — Sch 9 s 4 | (a) municipal and other local rates due at commencement and payable within the preceding year; (b) assessed income tax, or income tax and social services contribution, assessed before commencement, not exceeding one year’s assessment; (c) repayment of statutory advances for land improvement, development or settlement, or the aid or encouragement of mining |
| 5 — s 361(1) | All other claims — ordinary unsecured creditors, ranking equally and abating rateably |
| 6 — s 359(2), (3) | Interest on admitted claims from commencement to payment |
| 7 — s 361(4) | Surplus assets to shareholders, per the constitution or, failing that, this Act |
Under Schedule 9 section 5, the total given priority under section 2(a), (b), (c) or (d) shall not, for any one employee, exceed K20,000.00, or such greater amount as may be prescribed at the commencement of the liquidation. The balance is an ordinary unsecured claim.
The cap does not apply to section 2(e) or to the superannuation contributions in section 2(f). Under section 13, remuneration for annual leave, long service leave, or absence through sickness or other good cause is treated as wages for services rendered during that period.
Section 6 — a person who advanced money to pay wages or leave has the same priority as the employee would have had.
Section 7 — claims in each of sections 1, 2, 3 and 4 rank equally among themselves and abate in equal proportions; and, so far as assets available for general creditors are insufficient, they have priority over claims in respect of assets subject to a floating charge. “Floating charge” includes one that conferred a floating security when created but has since become fixed. Under section 8, what is paid out of those assets becomes an unsecured debt owed by the company to the secured party.
Section 9 — where a landlord or other person has distrained within the month before commencement, the preferential claims are a first charge on the goods distrained or their proceeds, and the distrainor takes the priority of the claimant it paid.
Sections 10 to 12 — where the company is insured against liability to third parties and the company or liquidator receives money from the insurer, the liquidator shall pay it to the third party, after expenses of getting it in, in priority to all payments in sections 1 to 4. Where the insurer’s liability is less than the company’s, the third party’s rights for the balance are unaffected. These provisions have effect notwithstanding any agreement to the contrary entered into after commencement.
Section 361 — ordinary creditors and the surplus
(1) After paying preferential claims, the liquidator shall apply the assets in satisfaction of all other claims.
(2) Those claims rank equally among themselves and shall be paid in full, unless the assets are insufficient, in which case payment shall abate rateably.
(3) Where, before the commencement of a liquidation, a creditor agrees to accept a lower priority than it would otherwise have, nothing in this section prevents the agreement from having effect according to its terms.
(4) Subject to section 359, the liquidator shall distribute surplus assets in accordance with the constitution, or — where it contains no such provisions, or the company has none — in accordance with this Act.
Subsection (3) validates subordination agreements. A creditor may contract to rank behind others, and the liquidator gives effect to it — but only where the agreement was made before the liquidation commenced.
Schedule 10 — the payment procedure
1. The liquidator may from time to time distribute such funds as he thinks fit to creditors who have claimed.
2. Before any payment, prepare a list showing all claims received, the amount of each, and the amount to be paid.
3 and 4. The liquidator may fix a date by which a creditor must claim to participate, and give public notice of the payment and that date — the date being not less than one month after the notice and not more than one month before the payment.
5. A creditor who does not claim by that date may be excluded from the payment.
6. The list is available for inspection by any claimant creditor or shareholder on each working day in the 14 days before payment.
7. The liquidator shall pay on the date in the public notice, unless notice of a section 332 application challenging acceptance of a claim has been served — and no payment so made is liable to be disturbed by a later challenge.
8. A creditor claiming after a payment is paid at the same rate as equally ranking creditors already paid, so far as assets allow; earlier payments are not disturbed; and that creditor participates in later payments on the same footing.
9. Where a claim is under challenge under section 332, the liquidator shall not pay on it, and may make provision for the payment and the probable costs before paying others.
A guarantor who has paid or discharged a debt of the company, in whole or in part, before or after commencement — subject to any contrary agreement with the creditor — may stand in the place of the creditor where that creditor has claimed for the amount paid, or otherwise make a claim for the amount discharged.
This is the counterpart of section 346(4): a related-entity guarantor who repays the liquidator is put in the position of a guarantor who has paid, and Schedule 10 clause 10 tells them how to claim.
Section 364 — the Liquidation Surplus Account
Money representing unclaimed assets standing to the credit of a Court-appointed liquidator is, after completion, paid to the Registrar. After one year — less any claim established in that time — the balance is paid into the Liquidation Surplus Account.
The Account may only be invested in banks approved under the Banks and Financial Institutions Act 2000, and its money may be (a) paid to a person entitled in the liquidation whose surplus was credited to it, or (b) applied, on the Registrar’s conditions, to meet creditors’ claims, the costs of proceedings in a liquidation, legal or expert advice, or expert witness costs, where the Registrar is satisfied it is fair and reasonable.
The Unclaimed Moneys Act (Chapter 326) does not apply to money to which the section applies.
Paragraph (b) is a small but useful public fund: it can pay for proceedings in a liquidation with no assets — the very case in which section 304(b) otherwise excuses the liquidator from incurring expense.
Sources
- Companies Act 1997 — ss 248, 304, 313, 332, 353, 359–361, 364; Schedules 9 and 10
The Banks and Financial Institutions Act 2000 and the Unclaimed Moneys Act (Chapter 326), referred to in section 364, are cited here without links as they are not currently available on PacLII.
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.