There may come a time in the life of a business entity when the best course of action is to dissolve it. If a company has fulfilled the purpose for which it was created or if it can no longer be operated profitably, its owners will want either to restructure or to exit from the venture altogether. Companies as legal persons are creations of the law and so they can also only be ‘killed’ under the law.
The Companies Act foresees both winding up and the striking of a defunct company off the register as ways in which the life of a company may be terminated. A company may be wound up either by a court, voluntarily or subject to the supervision of a court. Generally, the procedure involved in striking a company off the register is much simpler than that of winding it up. However, the law provides that if a company is struck off the register, the liability of any director, officer or member continues as if the Company had not been dissolved and also that courts still have the power to wind up a company whose name has been struck off the register.
The procedure for voluntarily winding up a company begins with the convening of a general meeting in which a special resolution is passed to wind up the company. Within 14 days thereafter, the company is required to give notice of the resolution by advertisement in the Kenya Gazette and in a local newspaper of wide circulation.
The directors of the company should in the meantime have made a declaration of insolvency in a prescribed form and they should have signed it at least 30 days prior to the date of the passing of the resolution to wind up. The declaration must contain a statement of the company’s assets and liabilities. A liquidator is then appointed. He must summon a general meeting within 3 months from the end of the year following the commencement of the winding up procedure in which members are informed of the state of affairs. Once the company is fully wound u, the liquidator prepares a final account and convenes a final general meeting which should be advertised in the Kenya Gazette. 14 days after the meeting, the liquidator should send a return of the meeting and a copy of the accounts to the Registrar of Companies. 3 months from the date of that registration, the company is deemed to be dissolved.
In contrast, in order to strike off a company for being defunct, the Registrar need only send two letters making an enquiry on whether the company is in operation and if after thirty days there is no reply or the reply is in the negative, he shall publish a notice in the Gazette and send a notice to the company by post that in 3 months from the date of the notice, the company will be struck off and dissolved. Alternatively, the striking off may be commenced by the request of a company director or secretary who informs the Registrar that the company is no longer in operation.