Winding Up of a Company / What are the types of winding up of a company?

                                                       

 The winding up or liquidation of a company is the process by which a company's assets are collected and sold in order to pay its debts. Any monies remaining after all debts, expenses and costs have been paid off are distributed amongst the shareholders of the company.   

Winding up of a company is the process through which the life of a company comes to an end and its property is liquidated for the benefit of its members & creditors. A liquidator is appointed who takes control of the company, evaluates the assets of the company, pays its outstanding liabilities and finally distributes any surplus left among its members.

What are the types of winding up of a company?-

Three common types of windings up are (1) Members voluntary winding up, (2) Creditors voluntary winding up, and (3) Compulsory winding up. Called liquidation in the US, it is not the same as bankruptcy or business failure.

A company is a legal person which comes into existence by way of incorporation and it is dissolved by a winding-up process as per the provisions of the Companies Act, 2013. The winding up process is the final stage in the life of a company after which the company becomes extinct.

 As per Section 2(94A) of the Companies Act, 2013, “winding up” means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016. The end result of winding up is the dissolution of the company. In between winding up and dissolution, the legal personality of the company remains intact and it can sue or be sued

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 –

1. By the tribunal or
2. Voluntary.

What is the procedure of Winding up of a company by Tribunal?

As per the Companies Act 2013, a company can be windup by a Tribunal, if:

1. It is unable to pay its debts;
2. The company has by special resolution resolved that the company be wound up by the Tribunal;
3. The company has acted against the sovereignty of India, relations with friendly foreign states, public order, morality or decency;
4. The Tribunal has ordered the winding up of the company under Chapter XIX;
5. If the company has not filed financial statements or annual returns for the preceding five consecutive financial years;
6. If the Tribunal is of the opinion that it is just and equitable that be company should be wound up; or
7. The affairs of the company were conducted in a fraudulent or the basic purpose for the incorporation of the company was for fraudulent and unlawful purposes or the person involved in the management of the company have been found guilty of fraud.

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:

1. If the company passes a special resolution for winding up of the Company or
2. The company passes a resolution in a general meeting for winding of the company 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?

• The board meeting must be conducted with minimum 2 directors and a resolution must be passed with a declaration 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 the sale of its assets,
• Notices must be issued in writing for calling of a General Meeting proposing the resolution along with the statement with an explanation of the same,
• In General Meeting the resolution must be passed by the ordinary majority or special resolution by a 3/4th majority,
• Conduct a meeting of creditors after passing the resolution, if creditors in the majority of the winding up then the company can be wound up voluntarily,
• Within 10 days of passing the resolution, a notice has to be given to the registrar for the appointment of a liquidator,
• Within 14 days of passing such resolution, give a notice of the resolution in the official gazette and also advertise in a newspaper,
• After passing of such resolution, a notice has to be given in the official gazette and should be advertised in a newspaper,
• Within 30 days after the General meeting, certified copies of ordinary or special resolution should be passed,
• After the affairs of the company have been wound up a liquidators account should be prepared and the same should be audited,
• A general meeting of the company has to be conducted and in the same meeting   a special resolution has to be passed for the disposal of books and all necessary documents of the company,
• 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,
• After the general meeting, a copy of accounts has to be submitted within 15 days before the tribunal for passing the order of dissolution,
• After looking into the copy of accounts if the tribunal is satisfied that all necessary compliances have been complied with then it may pass the order of dissolving the company in 60 days of receiving such application,
• The appointed liquidator has to then file the order of the tribunal with the registrar of companies,
• The registrar then has to publish a notice in the official gazette declaring the company to be dissolved.

With the advent of NCLT and NCLAT, there would be an efficient implementation of the provisions for winding up. It will reduce the pendency due to the availability of only one forum. These institutions would work as specialised bodies and would reduce the time period required for winding up of companies.

1.-Who can apply for winding up of company?

Petition by the Company - A company can file a petition to the Tribunal for its winding up when the members of the company have resolved by passing a Special Resolution to wind up the affairs of the company.

2.-What are the consequences of winding up of a company?

Once the liquidator takes over the directors can no longer exert any influence on the direction of the company. If the company needs to have a liquidator appointed it's because the business is insolvent and can't pay back creditors. A liquidator's primary responsibility is to pay back as much of that debt as possible.

3.-What is the difference between liquidation and winding up of a company?

What is the difference between Winding Up and Liquidating a Company? ... Winding Up involves ending all business affairs and includes the closure of the company (including liquidation or dissolution), whilst Liquidation is specifically about selling off company assets in order to pay creditors and then closing the company.

4.-What is the process of winding up a company?

A creditor such as HMRC, the bank or a supplier can petition the court to wind up a company if it believes the company is unable to pay its debts. ... If the winding up petition is approved by the court, a winding up order will be made that forces a company into a compulsory liquidation.