An Introduction To Section 471 of Companies Act 2016

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An Introduction To Section 471 of Companies Act 2016

July 30, 2022 Corporate & Commercial Disputes 0

Previously, we shared on section 470 of the Companies Act– what it is about, what it does, and the purpose of the section. 

TLDR, section 470 puts all legal proceedings against the company on hold except that of the winding-up petition against the company to ensure that a company’s assets are preserved and the company is able to distribute the assets accordingly to its debtors.

Similarly, in this article, we will discuss section 471 of the Act, another safeguard mechanism that is put in place with similar effects. 

What does section 471 say?

Section 471 of the act states that:

“ When a winding up order has been made or an interim liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company except by leave of the Court and in accordance with such terms as the Court imposes.”.

What is the purpose of section 471?

Similar to what we shared in regards to relation 470 of the Act, section 471 is a safeguarding mechanism that is put in place to ensure that a company’s assets are preserved when a company is wound up or where an interim liquidator has been appointed to manage the affairs of the company (after the company is being wound up). As noted by the court:

“… it cannot be disputed that the primary object of winding up is the collection and distribution of the assets of the company pari passu amongst unsecured creditors after payment of preferential debts. And the purpose of the statutory provision is to ensure that all claims against the company in liquidation which can be determined by the cheap and summary procedure available in a winding up are not made the subject of expensive litigation. The provision is designed to prevent unnecessary multiplicity of suits which may result in dissipating the assets of the company…”

What is the end result?

All pending legal suits against the company/ stopping any parties from pursuing a legal suit against the company unless the court gives consent (grant leaves) to the parties to continue their legal suit/ bring a legal suit against the company.  

When can such an application be made?

Post winding up order, or where an interim liquidator has been appointed by the court to manage the affairs of the company.

Who can apply?

Any pending litigators/ any person who wishes to sue the company.

Where to file it?

In the court that granted the winding-up order against the company.

What to take note of whilst filling out the application?

  1. Serve a copy of the application to the liquidator.
  2. A copy of the winding up order must be lodged with the Registrar of Companies within fourteen days from when the court makes such an order.

Are there criteria for filling a section 471 application?

Yes. As noted by the courts, an application has to fulfill two criteria before the court grants the application, namely:

  1. The applicant must show that his claim cannot be dealt with by the winding-up court; and
  2. The applicant must show that he has a prima facie case against the company or the company’s assets.

And there you have it. Hopefully, you have learned something new from these two articles!!

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