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Settlement of List of Contributories and Application of Assets

In the context of company law, specifically under Section 285 of the Companies Act 2013, the "Settlement of the List of Contributories and Application of Assets" refers to procedures conducted during the winding up of a company. This process is crucial when a company is insolvent or undergoing liquidation.

Definitions

  • Contributories: These are individuals or entities liable to contribute towards the assets of a company, especially during its winding up. This may include shareholders or other parties identified as having a responsibility based on their involvement with the company.

  • Application of Assets: This refers to the process of distributing the company's assets among creditors and contributories according to legal priorities and procedures.

Settlement of List of Contributories

  1. Identification: Identifying all potential contributories based on the company’s financial records, shareholder registers, and legal agreements.
  2. Finalization: Finalizing the list of contributories who are obligated to contribute to the company’s assets.

Application of Assets

  1. Liquidation: Initiating the process of liquidating company assets, which may include real estate, financial investments, and other tangible or intangible assets.
  2. Distribution: Using the proceeds from the sale of assets to settle the company’s debts and obligations. This includes paying creditors, bondholders, and other stakeholders.
  3. Prioritization: Ensuring that the distribution follows the statutory priorities and that the assets are distributed fairly and equitably among all stakeholders.

Case Study: Lehman Brothers Holdings Inc. (2008)

Collapse of Lehman Brothers

  • Lehman Brothers, a significant investment bank, collapsed in 2008 due to substantial losses in mortgage-backed securities heavily exposed to subprime mortgages.
  • Despite efforts to raise capital and secure a government bailout, Lehman Brothers filed for Chapter 11 bankruptcy on September 15, 2008, marking the largest bankruptcy filing in U.S. history.

Settlement of the List of Contributories for Lehman Brothers

  • During the bankruptcy proceedings, legal representatives compiled a list of contributories, including shareholders and creditors, based on the company’s records and legal agreements.

Application of Lehman Brothers' Assets

  • The trustee and legal team liquidated assets to generate funds to pay off the company’s creditors and other liabilities.
  • The proceeds from asset sales were used to settle debts, with priorities given according to the legal requirements of the bankruptcy proceedings.

Significance

  • The Lehman Brothers case illustrates the importance of effectively managing the settlement of contributories and application of assets during insolvency, ensuring fair and equitable distribution among all stakeholders.
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