Contributories and Calls

In one line

A contributory is a person liable to contribute to the assets on a winding up, the Tribunal settles a list of them, past members are liable only within five conditions, calls may be made before or after the sufficiency of the assets is known, set-off is available only in an unlimited company, and any surplus is distributed after the rights of contributories are adjusted.

In exam wording: under section 2(26) "contributory" means a person liable to contribute towards the assets of the company in the event of its being wound up; and an Explanation clarifies that a person holding fully paid-up shares shall be considered as a contributory but shall have no liabilities of a contributory under the Act whilst retaining rights of such a contributory.

Why the law has this at all

Limited liability means that a member's exposure is capped, and the cap is the unpaid amount on his shares or the amount he undertook to contribute on a guarantee. But it is a cap, not an immunity, and a winding up is the moment at which it is enforced.

The Act therefore has to answer four questions, and this chapter is those four answers.

Who is liable? The contributory, defined in s.2(26), and the list settled under s.285.

How much? The five conditions in s.285(3), and the further liability of a director or manager of unlimited liability under s.286.

How is it collected? By calls under s.296 and orders for payment under s.295, and by the liquidator's powers to prove in a contributory's insolvency and take administration to a deceased one, treated in [The Liquidator's Powers and Accounts].

And what if there is money left? The adjustment of rights under s.297 and distribution of the surplus.

Two features distinguish the contributory from an ordinary debtor. His liability is statutory, arising from membership rather than from any contract with the creditors; and it is owed to the company, not to the creditors directly, which is why the liquidator collects it and it goes into the general estate.

Who is a contributory

Section 2(26): a person liable to contribute towards the assets of the company in the event of its being wound up.

The Explanation: a person holding fully paid-up shares shall be considered as a contributory but shall have no liabilities of a contributory under the Act whilst retaining rights of such a contributory.

That Explanation settles a question that once caused difficulty and should be stated in every answer. A fully paid shareholder is a contributory, so he may petition for winding up, be placed on the list, be heard, and share in any surplus; but he owes nothing, because there is nothing unpaid on his shares. Compare s.272(2), which lets a contributory petition notwithstanding that he may be the holder of fully paid-up shares, treated in [Grounds for Tribunal Winding Up].