Winding Up Of A Company – Meaning, Petition & Process
The process of setting up a business and winding up is a process of law. In the modern era, setting up business/ incorporation has been simplified by way of ease of doing business.
In light of the Companies Act, 2013, winding up is a process of dissolving the legal existence of the company. In the practical scenario under the earlier Companies Act, winding up of a company takes years to complete and was a tedious process. This article covers the overview of the winding up and modes as prescribed under the Companies Act, 2013 and Insolvency & Bankruptcy Code, 2016. In this article we will discuss the Process of Winding up of a Company in accordance with the syllabus of Setting up of Business Entities and Closure – SBEC CS EXECUTIVE.
MEANING OF WINDING UP
Winding up is the process by which the assets of the company are saved and the affairs of the company are wound up. Even during the process of winding up the company continues to be a legal person.
Provisions under Companies Act, 2013
As far as provisions under the Companies Act, 2013, it provides extensive coverage for every aspect of winding up. Provisions 270 to 365 deal with winding up, almost 1/4th the Act. Wherein it lays down the complete statutory provisions under those sections:
Section 270 of the Act, provides that the company may be wound up either:
- Voluntary winding up or
- Winding up by Tribunal
- Section 271 to 303 – deals with Winding up by the Tribunal
- Section 204 to 323 – deals with Voluntary Winding-up
- Section 324 to 358 – deals with provisions applicable to every mode of winding up
- Section 359 to 365 – deals with provisions relating to Official liquidator
VOLUNTARY WINDING UP OF A COMPANY
Section 304 provides that the company can be wound up voluntarily by the mutual decision of members of the company, if:
- The Company passes a Special Resolution for the purpose of winding up
- The Articles of Association of the Company provides for dissolution after the expiry of the specific period or at the occurrence of any such event and a resolution in this regard is passed at the general meeting for winding up.
PROCEDURE FOR VOLUNTARY WINDING UP OF A COMPANY
In specific to the procedure for winding up and compliances, there are numerous provisions to be taken care of. Curtailing to the procedural part, the following gives a broad schedule of events:
– The foremost step in voluntary winding up in which the Board of Directors passed a resolution declaring the solvency position of the company that they believe that the company has no debt or it will be able to pay its debt after utilizing all the proceeds from the sale of its assets. This is nothing but the declaration of solvency by the Company.
– Subsequently, a General Meeting is called for obtaining members’ approval. Notices in writing for calling of a General Meeting proposing the resolution along with the explanatory statement are issued in this regard.
– At the General Meeting, an ordinary resolution for the purpose of winding up by ordinary resolution by simple majority or special resolution by 3/4thmajority should be passed. The date of passing the resolution is the starting date of winding-up proceedings.
– Apart from the General Meeting, a separate meeting of creditors shall be convened and if the majority creditors are of the opinion that winding up is beneficial for all parties then the company can be wound up voluntarily shall pass a resolution to that effect.
– Within 10 days of passing the resolution, the company shall file a notice with the Registrar of Companies for the appointment of liquidator. And publish a copy of the notice of the resolution in the official gazette and newspaper within 14 days.
– Within 30 days of the General meeting, the certified copies of the ordinary or special resolution passed shall be filed with the respective authorities.
– The next tedious process is that the liquidator shall wind up the affairs of the company and prepare the liquidators account and get the same audited. Though looks simple, this is where the time period of completion is never known.
– Post to which a General Meeting is convened, wherein a special resolution for disposal of books and all necessary documents of the company is passed.At this stage, the affairs of the company are completely wound up and it is about to dissolve. This is the final meeting before dissolution.
– Within 15 days of the final General Meeting of the company, the company shall submit a copy of the accounts and apply it to the tribunal for passing an order for dissolution. If the tribunal is of the opinion that the accounts are in order and all the necessary compliances have been fulfilled, the tribunal within 60 days of receiving such an application shall pass an order for dissolving the company.
– On receipt of the dissolution order from the Tribunal, the company shall file a copy of the order with the Registrar. After which the registrar then publish a notice in the official Gazette declaring that the company is dissolved.
WINDING UP OF A COMPANY BY A TRIBUNAL
As per Section 271 of the Company Act, a company can be wound up by a tribunal if a winding up petition under this section in any of the below circumstances:
– If the company is unable to pay its debts
– If the company has, by way of a special resolution, resolved that the company be wound up by the tribunal
– If the company has acted against the interest of the sovereignty or integrity of India, the security of the state, or has spoiled any kind of friendly relations with foreign or neighboring countries, public order, decency or morality.
– If the company has defaulted in filing the financial statements or annual returns with the Registrar for immediately preceding 5 consecutive financial years
– If the Tribunal has ordered the winding up of a sick company
– If on an application made by the Registrar or any other person authorized by the Central Government by notification, the Tribunal believes that the affairs of the company have been conducted fraudulently or the company was formed fraudulent or fraudulent purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound up.
– If the tribunal is of the opinion that it is just & equitable that the company should be wound up.
FILING OF WINDING-UP PETITION – SECTION 272
A winding-up petition for compulsory winding-up can be presented by the following persons in the prescribed form:
- The company
- Any creditor or creditors including any contingent or prospective creditors
- Any contributory or contributories
- By the Central or State government
- By the Registrar
- Any person authorized by Central Govt. for that purpose
At the time of filing a winding up petition, it shall be accompanied by the statement of Affairs. The petition shall state the facts up to a specific date which shall not more than 15 days prior to the date of making the statement.
The statement shall be certified by a Practicing Professional. The same shall be advertised in newspapers both in English and any other regional language not less than 14 days before the date fixed for hearing
On a petition filed under section 272, the Tribunal may pass any of the following orders within 90 days of presentation of the petition:
- Dismiss the petition, with or without costs;
- Make an interim order as it thinks fit;
- Appoint a provisional liquidator till the making of a winding-up order;
- Make an order for the winding up with or without costs; or
- Any other order as it thinks fit.
The Tribunal shall give an opportunity of being heard to the company before the appointment of a Provisional Liquidator. The order for winding up of a company shall operate in favor of all the creditors and all contributories of the company as if it had been made out on the joint petition of creditors and contributories.
The liquidator is required to submit to the Tribunal within sixty days from the order, a report containing the following particulars:
- the nature and details of the assets of the company with their respective location and value, stating separately the cash and bank balance if any, and the negotiable securities held if any
- valuation report of the assets obtained from registered values
- amount of capital issued, subscribed, and paid-up;
- the existing and contingent liabilities of the company along with the names, addresses, and occupations of its creditors. It shall also state the amount of secured and unsecured debts separately. In case of secured debts, particulars of the securities given, by the company or an officer thereof, their value and the dates on which they were given shall also be given
- the debts due to the company and the names, addresses, and occupations of the persons from whom they are due and the amount likely to be realized on account thereof;
- guarantees, if any, extended by the company;
- list of contributories and dues, if any, payable by them and details of any unpaid call;
- details of trademarks and intellectual properties, if any, owned by the company;
- details of subsisting contracts, joint ventures, and collaborations, if any;
- details of holding and subsidiary companies, if any;
- details of legal cases filed by or against the company; and
- any other information which the Tribunal may direct or the Company Liquidator may consider necessary to include.
Once the affairs of the company have been completely wound up, the Liquidator shall make an application to the Tribunal for dissolution of the company.
On such an application filed by the Company Liquidator before the tribunal or when the Tribunal thinks that it is just and reasonable that an order for the dissolution of the company should be made, shall pass an order that the company is dissolved. The order is effective from the date of the order and the company shall be dissolved accordingly.
The tribunal after hearing the petition shall have the power to dismiss it or to make an interim order as it thinks appropriate or it can even appoint a provisional liquidator till the passing of the winding-up order. Till then the legal existence of the company shall continue.
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