Winding up of companies 321Crystallisation occurs automatically:(a) When a receiver is appointed.
(b) When the company goes into liquidation.
(c) When the company ceases to carry on business.
(d) On the occurrence of an event which the contract stipulated would lead to automatic
crystallisation.
Crystallisation may also occur when the debenture holder gives notice that he is converting
the floating charge into a fixed charge. This can only be done if the contract which created
the charge allows for it. If the assets which were the subject of the charge are sold after cry-
stallisation then the charge holder can recover them from the party to whom they were sold.
Registration of charges
Section 860(1) requires companies to register charges with the Registrar of Companies
within 21 days of their creation. This registration is necessary so that others who might wish
to do business with the company can see what charges exist over the company’s property.
If a charge is not registered it will be invalid, although the creditor will still be able to sue
as an unsecured creditor.
Priority of charges
As regards properly registered charges, the order of priority is as follows.
(i) A fixed charge has immediate effect from the moment it was created. It ranks higher
than existing floating charges unless the floating charge expressly prohibits the creation
of another charge over the same property and the person taking the later fixed charge
knew that this was the case. (Registration is not enough on its own to amount to actual
notice of the prohibition.)
(ii) Floating charges attach to property only from the moment of crystallisation.
(iii) Floating charges generally rank amongst themselves in order of priority of creation.
This is not the case where the contract creating the first floating charge provides that a
later floating charge may have priority.
Winding up of companies
The legal personality of a company is ended by a process known as liquidation or winding
up. The terms mean the same thing. After the company is wound up it will cease to exist. A
liquidation may either be ordered by the court or brought about by the members of the com-
pany. A liquidation ordered by the court is called a compulsory liquidation. A liquidation
brought about by the members is known as a voluntary liquidation.
Liquidation by court order
A court can order the compulsory liquidation of a company on several grounds. The two
most important grounds are that the company cannot pay its debts, or that it would be just
and equitable to wind the company up.