Debts Provable in Winding Up: Section 324

The rule on debts provable in winding up is one sentence long, and it is deliberately wide. Section 324 of the Companies Act, 2013 admits debts of all descriptions to proof, including claims that have not fallen due, claims that may never fall due, and claims that carry no fixed money value at all. This page reads section 324 as printed, together with the section next to it that the Insolvency and Bankruptcy Code, 2016 removed, and the costs power in section 298.

What are debts provable in winding up?

Very nearly every claim anyone can make against the company. The marginal heading of section 324 is Debts of all descriptions to be admitted to proof, and the operative words are that in every winding up all debts payable on a contingency, and all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to proof against the company.

Read the three pairs in that list. Present or future covers a debt that has not yet fallen due. Certain or contingent covers a claim that depends on an event that may never happen. Ascertained or sounding only in damages covers a claim nobody has yet put a number to. The duty is shall be admissible, not may be.

How is a claim with no fixed value proved?

By estimate, and the section says so in the same sentence. It requires a just estimate being made, so far as possible, of the value of such debts or claims as may be subject to any contingency, or may sound only in damages, or for some other reason may not bear a certain value.

Two qualifiers sit on that estimate. It must be just, and it is to be made so far as possible, which concedes that some claims resist valuation. The section prescribes no method, no valuer and no deadline, which leaves the mechanics to the Tribunal and to the Company Liquidator conducting the proceedings.

What does the opening parenthesis of section 324 do?

It carves out insolvent companies, and it now points at a gap. Section 324 opens with the qualifier (subject, in the case of insolvent companies, to the application in accordance with the provisions of this Act or of the law of insolvency).

The section that used to supply that application is gone. Section 325, printed under the heading [Application of insolvency rules in winding up of insolvent companies.], was Omitted by the Insolvency and Bankruptcy Code, 2016 (31 of 2016) s. 255 and the Eleventh Schedule (w.e.f. 15-11-2016). Section 324 itself was not amended, so its reference to the law of insolvency survived the section that carried the rules across.

That is the same drafting pattern seen elsewhere in this Chapter, where a 2016 substitution changed one provision and left a cross-reference in its neighbour untouched. A reader working out how an insolvent company's proofs are handled has to look outside section 324 for the answer.

Where does section 324 sit among the other provisions?

At the front of Part III. Sections 324 onwards are printed under a Part heading reading Provisions applicable to every mode of winding up, so section 324 applies whether the winding up is by the Tribunal or otherwise, unlike the Part I machinery that begins at the grounds for a winding up order.

Another section feeds claims into section 324 directly. Section 333(7) provides that Any person affected by the operation of a disclaimer under this section shall be deemed to be a creditor of the company to the amount of the compensation or damages payable in respect of such effect, and may accordingly prove the amount as a debt in the winding up, which is how a counterparty left holding nothing by a disclaimer of onerous property becomes a proving creditor.

Proof and priority are different questions. Admitting a claim under section 324 says nothing about where it is paid in the queue; that is set by section 326 and section 327, covered in preferential payments in a winding up. Whether a transaction that created the claim survives at all is a third question again, answered by fraudulent preference under section 328.

Who pays the costs of the winding up itself?

The assets, if the Tribunal so orders. Section 298 is one sentence: the Tribunal may, in the event of the assets of a company being insufficient to satisfy its liabilities, make an order for the payment out of the assets, of the costs, charges and expenses incurred in the winding up, in such order of priority inter se as the Tribunal thinks just and proper.

Two things in that sentence are worth separating. The power is conditioned on insufficiency of assets, and the priority inter se is left to the Tribunal rather than fixed by the section. Section 298 sits in Part I, so it is written for a winding up by the Tribunal, while section 324 sits in Part III and applies to every mode.

Reading a proof therefore means asking three questions in order: is the claim admissible under section 324, which it almost always is; what value has been estimated for it; and where does section 326 or section 327 put it in the queue. Debts provable in winding up is the widest of the three tests, and the one that decides the least.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.