New claim settlement order for winding up finance companies

• Finance Business (Priority of Claims in winding up of finance company) under the Finance Business Act published in Gazette by Finance Minister
• Regulations give order of preference by which to settle claims
• Liquidator gets first preference followed by unpaid premium due to SLDILSS
• Preferential claims set out in Companies Act, No. 7 of 2007 will not apply in winding up of finance companies once new regulations come into effect

By Chandani Kirinde

The Finance Ministry has introduced regulations setting out the preferential claims order to be followed when winding up a finance company.

The regulations cited as the Finance Business (Priority of Claims in winding up of finance company) Regulations have been made by Minister of Finance Mangala Samaraweera under the Finance Business Act, No. 42 of 2011.

The liquidator will be required to pay out of the assets of the company the expenses, fees and claims according to its tenor, to the extent and in the order of priority set out in these regulations.

Under the preferential claims order, the fees and expenses incurred by the liquidator in carrying out the duties and exercising powers as a liquidator and his/her remuneration will be settled first followed by payment of the unpaid premium due to Sri Lanka Deposit Insurance and Liquidity Support Scheme (SLDILSS).

The other claims to be settled thereafter will include all provident and trust fund dues and gratuity payments due to any employee, all rates and taxes due from the company at the date of commencement of the liquidation and all dues to the Government as recurring payments, for any services given or rendered periodically.

The other  claims to be settled before the winding up include industrial court awards and any other statutory dues payable to any employee  as well as wages, salaries or commissions payable in respect of the services rendered to the finance company during the three-month period immediately preceding the commencement of winding up proceedings.

However, no claims will be paid to any employee or the directors performing executive functions if they are being subject to an investigation or inquiry for involvement in fraud, deceit, dishonesty or other similar criminal activity, conducted by the police, any regulatory or supervisory authority, professional association, commission of inquiry, tribunal or other body established by law, in Sri Lanka or abroad or have been found guilty for any such acts.

The claims set out by the regulations will have to be paid out from the assets of the finance company in the order set out and will have to be paid in full, unless the assets are insufficient to meet them, in which case they abate in equal proportions.

The preferential claims set out in the Ninth Schedule of the Companies Act, No. 7 of 2007 will not apply in winding up of a finance company after these regulations come into operation.