What is Winding up of a company?
Winding up of a company is the process through which life of a company comes to an end and its property is administered for the benefit of its members & creditors. An Administrator, called a liquidator is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.
What is the law governing the procedure of Winding up in India?
Section 270 of the Companies Act 2013, lays down the procedure for winding up of a company. It provides two ways of winding up –
By the tribunal
What is the procedure of Winding up of a company by Tribunal?
- As per Companies Act 2013, a company can be wound up by a Tribunal, if:
- It is unable to pay its debts.
- The company has by special resolution resolved that the company be wound up by the Tribunal.
- It has acted against the interest of the sovereignty and integrity of India, the security of the State, friendly relations with foreign states, public order, decency or morality.
- The Tribunal has ordered the winding up of the company under Chapter XIX.
- If the company has not filed financial statements or annual returns for the preceding five consecutive financial years.
- If the Tribunal is of the opinion that it is just and equitable that be company should be wound up.
- If the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purposes or the persons concerned in the formation or management of its affairs have been guilty of fraud or misconduct.
What is Voluntary Winding up of a company?
- The winding up of a company can also be done voluntarily by the members of the Company, if:
- If the company passes a special resolution for winding up of the Company.
- The company in general meeting passes a resolution requiring the company to be wound up voluntarily as a result of the expiry of the period of its duration, if any, fixed by its articles of association or on the occurrence of any event in respect of which the articles of association provide that the company should be dissolved.
What are the procedures involved in Voluntary Winding up of a Company?
- Step 1 – Conduct a board meeting with 2 Directors and thereby pass a resolution with a declaration given by directors that they are of the opinion that company has no debt or it will be able to pay its debt after utilizing all the proceeds from sale of its assets.
- Step 2 – Issues notices in writing for calling of a General Meeting proposing the resolution along with the explanatory statement.
- Step 3 – In General Meeting pass the ordinary resolution for the purpose of winding up by ordinary majority or special resolution by 3/4th majority
- Step 4 – Conduct a meeting of creditors after passing the resolution, if majority creditors are of the opinion that winding up of the company is beneficial for all parties then company can be wound up voluntarily.
- Step 5 – Within 10 days of passing the resolution, file a notice with the registrar for appointment of liquidator.
- Step 6 – Within 14 days of passing such resolution, give a notice of the resolution in the official gazette and also advertise in a newspaper.
- Step 7 – Within 30 days of General meeting, file certified copies of ordinary or special resolution passed in general meeting.
- Step 8 – Wind up the affairs of the company and prepare the liquidators account and get the same audited.
- Step 9 – Conduct a General Meeting of the company.
- Step 10 – In that General Meeting pass a special resolution for disposal of books and all necessary documents of the company, when the affairs of the company are totally wound up and it is about to dissolve.
- Step 11 – Within 15 days of final General Meeting of the company, submit a copy of accounts and file an application to the tribunal for passing an order for dissolution.
- Step 12 – If the tribunal is of the opinion that the accounts are in order and all the necessary compliances have been fulfilled, the tribunal shall pass an order for dissolving the company within 60 days of receiving such application.
- Step 13 – The appointed liquidator would then file a copy of order with the registrar.
- Step 14 – After receiving the order passed by tribunal, the registrar then publish a notice in the official Gazette declaring that the company is dissolved.
What are some recent development in this area?
In 2015, the Supreme Court upheld the constitutional validity of the NCLT and NCALT. Therefore, the establishment of NCLT and NCLAT might result in an efficient implementation of the winding up provisions. This will definitely reduce the multiplicity in the number of cases in multiple forums. These institutions will work as specialised quasi-judicial bodies and will reduce the pendency of winding-up cases, shorten the winding-up process, and avoid multiplicity and levels of litigation before high courts, the Company Law Board and the Board for Industrial and Financial Reconstruction.