Problematic of liquidation and dissolution of companies under rwandan law: case study of Rwandatel

I.3.2. Company liquidation

Liquidation of a company may be chosen which a result of a company winding up is also. When a company is liquidated, its assets are used to pay off its debts. The surplus which is left goes to the shareholders. The company stops doing business and employing people. The company won't exist once it's been removed from the companies register. Here below there is a procedure of company liquidation.

I.3.2.1. A company liquidation procedure

Speaking broadly, company liquidation happens in mainly four stages: the appointment of a liquidator, the collection and realization of the company's assets, the payment of all dividends to the creditors with respect to their legal priority and finally the dissolution.

The first step is the appointment of a liquidator either by the company itself (voluntary liquidation) or the court (compulsory liquidation). The liquidator's roles are to overlook the rest of the liquidation process by exercising the powers he is authorized to by the court depending on the type of liquidation. The liquidator assumes the control of all property to which the company is entitled and exercises his/her power under court supervision for certain activities when in compulsory liquidation while in voluntary liquidation; the liquidator doesn't need the court's approval to carry out the liquidation activities^36(*).

Theliquidator's general powers include: selling the assets of the company;raise any money for the purpose of the liquidation by using the assets of the company as security^37(*); to issue, draw or accept bills or cheques in the name of the company; appointing an agent to carry out the liquidation process when he isn't available; to act and execute documents in the nameand on behalf of the company; and in general all activities necessary to the winding up of a company as well distributing its assets.In compulsory liquidation, the liquidator may request for court approval in the cases he is to raise or defend any legal activities in the name or on behalf of the company and to carry out the business activities of the business as long as those activities will be beneficial to the liquidation process^38(*).

The liquidator's primary focuses are to ensure that all creditors were paid in full; and to make and agree about any compromises to be made by the company or the creditors and shareholders in the liquidation process.

The second step of a company's liquidationis carried in the following order: collecting and realizing the company's assets (i.e. turning them into cash),discharging the company's liabilities, and distributing the leftover funds among the shareholders according to the company's distribution^39(*).

The collection of the company's assets is done by the liquidator after he has taken control of all of the company's assets and he collects and recovers all the physical assets of the company including money in the company's bank accounts and uncalled capital. The liquidator also has a duty to recover all the debts owed to the company thus increasing the company's assets. Turning the company's assets into cash often involves selling the intangibleassets. This is done by advertizing publicly of the sale of the assets or through auctions. The liquidator's primary focus is to achieve the highest price possible.

After the company's assets are realized, the next step is to pay its creditors. The creditors are paid according to a certain hierarchy strictly enforced by courts. Secured creditors are a priority while the unsecured creditors are paid later. A secured creditor (or preferential creditor) is a creditor receiving a preferential right to payment upon the debtor's bankruptcy under applicable insolvency laws^40(*). Secured creditors include the liquidator, the employees (including holiday wages) and the institution in charge of collecting taxes and customs (revenue authority). Unsecured creditors on the other hand, have no security interests in the debtor's assets^41(*). When the funds available after payment of secured creditors do not cover the remaining claims, the unsecured creditors receive a parri passu(on equal footing) distribution of the remaining funds of the in-liquidation company according to their debts.

After secured and unsecured creditors are paid their dues (declared but unpaid dividends or profits), payments members and shareholders of the company are issued. They are paid depending on the priority of their claims: first dividends are paid and then surplus if any are also distributed with respect to their claims.

I.3.3. Comparative study dissolution and liquidation in different countries

This aims at using cross-cultural comparisons to achieve various objectives and as it will enable the researcher to make a comparison of how liquidation and dissolution of companies is done different countries across the world as it is stated above that it is done depending on the law of each country involved. All in all, it provides an analytical framework for examining and explaining differences and specify.

* ³⁶ M.B. Salgado, op. cit., p.45.

* ³⁷ ACCA, Paper 2.2. Corporate and Business Law, Foulks Lynch, Britain, 2004, p. 332.

* ³⁸Idem, p.333.

* ³⁹ K. Tully, «Helping Companies in Trouble», available at www.howtolaw.co.nz/liquidate-a-company-xidp392106.html/, last accessed 5/5/2014.

* ⁴⁰ S. N. Taieb, «Liquidation», 2014 available at www.wikipedia.org/wiki/Preferential_creditor/, last visited 5/5/2014.

* ⁴¹ UK Insolvency Act 1986 section 122.