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CMA Final · Corporate Financial Reporting · Absorptions, Amalgamations, External Reconstruction

Under Section 202 of the Companies Act, 2013, Karan, a whole-time director, left office and was granted compensation for loss of office. Within 12 months after he ceased to hold office, the company commenced winding up. On winding up, the assets after deducting expenses are Rs 40 crore, while the share capital including premium contributed by shareholders is Rs 55 crore. What is the position on the payment to Karan?

No payment may be made. The proviso to Section 202(3) prohibits compensation where winding up commences within twelve months after the director left office and the assets, after expenses, cannot repay shareholders' share capital including premium. Rs 40 crore is less than Rs 55 crore, so the bar applies.

  1. AIt may be paid, because the assets exceed the capital repayable to creditors
  2. BIt may be paid, but reduced proportionately to the shortfall of Rs 15 crore
  3. CIt may be paid in full, because winding up began after he left office
  4. DNo such payment may be made, because assets are insufficient to repay the share capital including premiumCorrect

Explanation

The proviso to section 202(3) bars payment if winding up commences before or within twelve months after he ceased office and the assets, after expenses, are insufficient to repay shareholders' share capital including premiums. Here Rs 40 crore is less than Rs 55 crore, so the bar applies. There is no proportionate reduction provision.

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