Liability of Past Members

A past member (i.e., List B contributory) shall not be liable to contribute

1. If he had ceased to be a member of the company one year or more before the

commencement of the winding-up.

2. In respect of any debt or liability of the company contracted after he ceased to

be a member.

3. If it appears to the Court that the present members will be able to satisfy the

contributions required to be made by them.

If a company goes into liquidation more than a year after the forfeiture of certain shares for non-payment of calls, the owners of such shares would be liable not as contributories, but as debtors of the company {Ladies’ Dress Association Ltd. V s. Pulbrook (1900) 2 QB 376]. The only effect of forfeiture is that the shares pass out of their hands, but the liability incurred previously to pay the call money remains [Shiromani Sugar Mills Ltd. Vs. Debi Prasad (1950) 20 Compo Cas. 296 (All)].

If transferees fail to pay the calls made in respect of the shares transferred to them, the shares will be forfeited for the benefit of the company; and the transferors will be liable to be placed on the list of contributories as past members of the company, if the shares were transferred within a year before the commencement of winding-up

[Accidental Marine Insurance Corpn., In re (1869) 4 Ch. App. 266]. Successive transfers of

the same shares made immediately before one year of winding-up would result in all the past owners of the said shares being treated as past members. However, their liability as contributories would arise only if it is apparent that the present members are unable to satisfy the debts of the company [Land Credit Company of Ireland, Humby’s case, In re 20 WR 718 and Kellock Vs. Enthoven (1874) LR 9 QB 241].

It may be noted that the plea of voidability or illegality of contract to take shares cannot be taken after winding-up to avoid liability as a contributory. The contract so vitiated should be sought to be set aside before the company goes into liquidation. The original contract may supply the reason for his name having been placed on the register in respect ( f the shares, but after the winding-up his liability in respect of the shares arises ex lege and ex contractu [Hansraj Gupta Vs. N.P. Asthana (1932) 2 Compo Cas. 543 (PC) and Mahomed Akbar Abdulla Fazalbhoy Vs. Official Liquidator (1950) 20 Compo Cas 26 (Bom.). On a winding up order being made the liability of a contributory becomes an absolute statutory liability. The unpaid calls can be recovered even though barred by limitation when the winding-up order is made [People’s Insurance Co. Ltd., In re (1962) 32 Compo Cas. 632 (Punj.) and T. M. Mathew Vs. Industrial Bank Ltd. (1972) 42 Compo Cas. 55 (Ker.)].