Void Transfers in Winding Up: Sections 334, 335
Void transfers in winding up are governed by two short sections that work on different objects. Section 334 of the Companies Act, 2013 voids dispositions of property and transfers of shares made after a winding up commences. Section 335 voids attachments, executions and sales put in force without the Tribunal's leave. Both apply to a winding up by the Tribunal, and both are printed with an exit: one through a Tribunal order, the other through Tribunal leave.
Definition
A void transfer in a winding up
is a disposition or share transfer struck down by section 334 of the Companies Act, 2013. In a winding up by the Tribunal, any disposition of the company's property, any transfer of its shares, and any alteration in the status of its members made after commencement is void unless the Tribunal otherwise orders. Source: Companies Act, 2013, section 334.
What counts as void transfers in winding up under section 334?
Three things, and the section names them in one sentence. As substituted, section 334 reads: In the case of a winding up by the Tribunal, any disposition of the property including actionable claims, of the company and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up shall, unless the Tribunal otherwise orders, be void.
The three objects are a disposition of property, a transfer of shares, and an alteration in the status of members. The first is expressly widened to include actionable claims, so a claim the company could have sued on is caught alongside land and goods.
Section 334 is printed in square brackets in the consolidation. The footnote records that it was Subs. by Act 31 of 2016, s. 255 and the Eleventh Schedule, for section 334 (w.e.f. 15-11-2016), so the text above is substituted text, not the section as originally enacted in 2013.
What does "after the commencement of the winding up" mean here?
Not the date of the order. Section 334 fixes its trigger by reference to commencement, and section 357, as substituted with effect from 15 November 2016, supplies the date: The winding up of a company by the Tribunal under this Act shall be deemed to commence at the time of the presentation of the petition for the winding up.
The practical consequence is that the void window opens before most people can see it. It runs from presentation of the petition, not from the order that makes the proceeding public under the effect of a winding up order, so a transaction can be struck down months after both sides treated it as good.
The escape is judicial, not automatic. The words unless the Tribunal otherwise orders mean a counterparty who took a transfer in the window is not left without a route, but the route runs through the Tribunal and the section prescribes no procedure, no applicant and no time limit for it.
Unless the Tribunal otherwise orders
The only exit section 334 of the Companies Act, 2013 gives from the avoidance of a post-commencement disposition of property, transfer of shares, or alteration in the status of members in a winding up by the Tribunal
Source: Companies Act, 2013, section 334
What does section 335 void, and what survives it?
Enforcement steps, and the exception is tax. Section 335(1) states that where any company is being wound up by the Tribunal, (a) any attachment, distress or execution put in force, without leave of the Tribunal against the estate or effects of the company, after the commencement of the winding up; or (b) any sale held, without leave of the Tribunal of any of the properties or effects of the company, after such commencement, shall be void.
The qualifier in both clauses is without leave of the Tribunal. An attachment or a sale carried through with leave is untouched, which makes section 335 a control on unilateral enforcement rather than a freeze on all enforcement.
Section 335(2) then carves out the Government: Nothing in this section shall apply to any proceedings for the recovery of any tax or impost or any dues payable to the Government. That exception is written into section 335 alone. Section 334 carries no equivalent, so a disposition of property is caught by section 334 whoever the transferee is.
| Section | What it voids | Exit printed in the section |
|---|---|---|
| 334 | Post-commencement dispositions of property including actionable claims, share transfers, alterations in member status | Unless the Tribunal otherwise orders |
| 335(1)(a) | Attachment, distress or execution against the estate or effects | Leave of the Tribunal |
| 335(1)(b) | Sale of the properties or effects | Leave of the Tribunal |
| 335(2) | Nothing: recovery of tax, impost or dues payable to the Government is outside the section | Not applicable |
How do sections 334 and 335 differ from fraudulent preference?
By what they require you to prove. Neither section asks about intent. Section 334 asks when the disposition was made, and section 335 asks whether leave was taken. The preference provisions that begin at section 328 ask a different question about the company's state of mind and the timing relative to the winding up, covered in fraudulent preference under section 328.
The sections also sit differently in the Chapter. Sections 334 and 335 are Part III provisions, printed under the heading Provisions applicable to every mode of winding up, but each is drafted with its own limiting words: section 334 opens In the case of a winding up by the Tribunal and section 335(1) opens Where any company is being wound up by the Tribunal. Both therefore operate on Tribunal windings up despite their placement.
Once a void transfer is unwound, the property returns to the estate that the Company Liquidator administers, and the counterparty's claim, if any, joins the queue with the other debts admitted to proof. For anyone reading a transfer dated near a winding up, the two questions that decide it are when commencement fell and whether leave was taken, because void transfers in winding up turn on those facts and not on good faith.
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Frequently asked questions
Which transfers are void in a winding up?
Under section 334, in the case of a winding up by the Tribunal, any disposition of the property including actionable claims, of the company and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up shall, unless the Tribunal otherwise orders, be void. Source: Companies Act, 2013, section 334.
Can the Tribunal save a transfer made after commencement?
Yes. Section 334 voids the disposition or transfer unless the Tribunal otherwise orders, so validation is a Tribunal decision rather than an automatic result. The section sets no application procedure and no time limit for seeking such an order. Source: Companies Act, 2013, section 334.
Are attachments and executions also void?
Section 335(1) voids, where a company is being wound up by the Tribunal, any attachment, distress or execution put in force without leave of the Tribunal against the estate or effects of the company after commencement, and any sale held without leave of the Tribunal of any of the properties or effects of the company after such commencement. Source: Companies Act, 2013, section 335(1).
Does section 335 stop tax recovery?
No. Section 335(2) states that nothing in that section shall apply to any proceedings for the recovery of any tax or impost or any dues payable to the Government. Government dues are therefore outside the section 335 avoidance, whatever their position under the priority provisions. Source: Companies Act, 2013, section 335(2).
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