What does winding up mean?
The purpose of winding up a corporation is to put an end to the company’s life and to realize the assets and pay company’s debts in accordance with the law promptly and reasonably. The objective must not, however, be manipulated for the profit or gain of any class or individual entitled to submit a petition for company’s winding up. It can be noticed that, except when it is dissolved, the corporation does not cease to exist as such. The company’s operating process gets modified as the management is transferred in the hands of the liquidator after paying off all the debts, the corporation will have no assets or liabilities and therefore, it will simply be dissolved.
What are the types of Winding Up?
There are two ways a company can wind up0:
- By tribunal
- Voluntary Winding up
Who can lodge a wind-up petition?
A petition to wind up the company can be filed by any of the following:
- A Company
- Any of the contributory or contributors
- The Registrar Of Companies
- A Central Government approved individual
- Case falling under Section 271 by the Central Government.
For what reasons the Tribunal may wound up the company?
- Where the Tribunal is of the opinion that the company should be wound up justifiably and reasonably.
- If the debts cannot be paid by the company.
- The company passed a special resolution to wound up the company.
- The company has opposed the interests of India’s sovereignty and dignity.
- Tribunal ordered to wind up.
- If the company has not filled in the financial statements or annual returns with the Registrar Of Companies for the previous five consecutive financial years.
What are the Tribunal’s Powers?
The tribunal may pass an order by any of the following means within 90 days of the date of submission of the petition
- Discard it, with or without costs;
- As the tribunal considers fit to issue any interim order;
- Appoint a temporary liquidator of the company until winding-up order is given.
- Make an order to wind up the company, with or without costs, and any of the order if it thinks fit.
How Voluntary Winding Up takes place?
The voluntary termination can be conducted by the company's representatives by passing a Special Resolution:
- As a consequence of the expiry of the Company’s incorporated period.
- Any case in which the Articles of Association specify the dissolution of the company.
Can members and creditors wind up voluntarily?
Members can opt for voluntary winding up when the company is solvent and can pay its debts adequately. There is no need for the company to contact the creditors for this purpose. The directors must make a solvency declaration followed by a list of assets and liabilities up to the date of the declaration and the auditor's report showing that the company has no obligations or in case of debts, the company will entirely pay its liabilities from the proceeds of the assets sold during the winding up process.
The declaration should be made within five weeks of the date of passing of the resolution and the same should be sent to the registrar along with the declaration that the company is not being wounded by any means of fraud.
What does Creditor's voluntary winding up mean?
If the liquidator appointed is of the view that the company is not able to pay its debts in full, the company and liquidator shall call for a meeting of the creditors of the company. The statement of affairs of the company should be submitted for the meeting.
If the appointed liquidator finds that the company cannot completely pay its debts, the company and the liquidator shall call for a meeting of the company's creditors. The company's statement of affairs should be presented for the meeting.
What are the steps for Voluntary Winding Up?
- A board meeting should be held with the two directors or by a majority of directors with a declaration by the directors that they have made an investigation into the Company's affairs and have stated the opinion that the Company has no liabilities or that it will be able to pay its debts in full from the proceeds of the assets sale in the Company's voluntary winding up.
- Fixing Date, time and place to conduct the general meeting.
- Issue a notice for calling the general meeting.
- To pass a special resolution of winding up, there is a need for conducting the meeting of Creditors and Members of the company. The company may be wound up if it is in the interest of all the parties.
- Appointment of registrar within 10 days after the special resolution has been passed.
- A notice should be published in the Official Gazette as well as advertised in a newspaper where the Company’s registered office is located.
- Filing of certified copies of the Special resolution within 30 days of the general meeting.
- Preparing and auditing of Liquidators account.
- Conducting the final general meeting and filing the application along with a copy of account to the tribunal to give the order for the dissolution of the company within 2 weeks.
- The decision to dissolve shall be taken by the tribunal, if satisfied, within 60 days of the application.
- The liquidator shall submit a copy of the order to the Registrar.
- The Registrar shall publish a notice in the official gazette that the corporation is dissolved once the order of the tribunal has been received by him.