Question

Liquidations on company

There are several situations that might arise due to the contributory claims

1. Insufficient funds for creditors

2.Sufficient funds to pay creditors, but not to repay share capital

3. Surplus funds exist over creditors claims and share capital

Please explain and elaborate on the above mentioned (Why and how?)

Answer 1

1.) If there is insufficient funds to pay off creditors , first amount due to preferential creditors will be paid first and the balance will shared to all unsecured creditors.

2.)The amount available after payment to creditors will distributed to shareholders. Firstly to preference shareholders and then the balance to equity shareholders equally.

3.)Surplus funds exist over creditors claims and share capital will be distributed to equity shareholders equally.