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Process Of Winding Up Of A Company

According to Halsburry"s Laws of England, "Winding up is a proceeding using which the dissolution of a company is brought about & in the course of which its assets are collected and realised; and applied in payment of its debts; and when these are satisfied, the remaining amount is applied for returning to its members the sums which they have contributed to the company by Articles of the Company. "Winding up is a legal process. (Pradhan 2013; Palmer 1952)

A firm may be wound up in one of ways: voluntarily (voluntary winding up) by order of a court (compulsory winding up) or by an order of a tribunal. Conceptually, there is no connection between the start of a winding up and whether the company is solvent. An insolvent firm may enter voluntarily winding up, while a solvent corporation may be forced to close its doors.

Most people mistakenly believe that a corporation can only be wound up if it is insolvent, although this is not always the case. It might occur because the shareholders are at odds, the firm is in decline with no hope for the future, the company has fulfilled the goal for which it was founded, or for any other reason.

A Registered Company And An Unregistered Company Winding Up

The act of ending a company"s existence and managing its assets for the benefit of its shareholders and creditors is known as "winding up." The liquidator, a designated administrator, assumes control of the business, gathers its assets, settles its obligations, and then distributes any remaining funds to the members by their entitlements. The company will have no assets or obligations after the winding up.

The dissolution of a firm occurs once all its business affairs have been concluded. When a company dissolves, its name is removed from the registry of companies and its legal personality as a company comes to an end.

Depending on whether the corporation is registered or unregistered, the winding-up process varies. A registered company is one that was established through registration by the Companies Act, of 2013. A current company that was established and registered under one of the earlier Companies Acts is also included.

In Pierce Leslie & Co. Ltd v. Violet Ouchterlony, 1969 SCR (3) 203 the Hon"ble Supreme Court held that winding up precedes the dissolution. There "is no statutory provision vesting the properties of a dissolved company in a trustee or having the effect of abrogating; the law of escheat. The shareholders or creditors of a dissolved company cannot be regarded as its heirs and successors. On dissolution of a company, its properties, if any, vest in the government.

Steps Of A Company"s Winding Up

The procedures to be followed for winding up a firm are as follows:
  • For liquefaction or winding up, an Administrator, often known as a liquidator, is chosen.
  • The company"s liquidator is responsible for taking charge of the business, gathering its assets, paying off its debts, and finalizing the distribution of any excess among the members by their rights and obligations.
  • Dissolution occurs when all the company"s assets and liabilities have been paid off.
  • After being wound up, the company"s name is removed from the list of entities, and it no longer exists as a distinct legal entity.
  • When a company is unable to pay its debts or the debts taken by the firm are worth more than the assets it holds and no deal has been struck with the creditors, the company is declared insolvent and is subject to compulsory winding up.
  • If the company"s winding up is handled through a court of law, the liquidator is referred to as the official liquidator.
  • The official liquidator operates through a recognized reporting system while being overseen by the authority.

Voluntary Winding Up Of A Company

A corporation has the option to voluntarily wind up its operations if it cannot continue operating; it was only founded for a certain purpose; it cannot pay its debts, etc. A business may voluntarily dissolve itself in one of the following two ways:
  • Member"s Voluntary winding up
  • Voluntary creditors" winding up
A business can voluntarily dissolve itself by doing one of the following: An ordinary resolution or a special resolution may be used after the company"s original purpose has been fulfilled or its original time limit has passed. Both resolution types must be approved at the company"s annual general meeting.

After the voluntary winding-up resolution has been approved, the company may be dissolved either by the consent of the members or the consent of the creditors. The Board of Directors must declare that the company has no debts in the event of a voluntary winding up by members, which is the only distinction between the two. (Sec.488)

According to Indian law, when a corporation is being wound up, the notice of the creditors" meeting must be delivered to each creditor at the same time as the notice of the general meeting. Additionally, it must be published in the Official Gazette and two papers with wide circulation in the area of the company"s registered office.

Before the meeting, a Statement of Affairs and a list of creditors with the amount owed to each should be created. If the resolution is approved at the creditors" meeting, a copy of it must be lodged with the register within ten working days of the approval date.

The creditors must choose a liquidator at the same creditors" meeting. This liquidator will operate by IBC Code 2016 regulations and will handle all tasks associated with winding up the business. He will create a comprehensive list of the company"s assets and liabilities and suggest the procedure and timetable for liquidation. The charge that must be paid to this liquidator is included in the liquidation costs, according to the Insolvency and Bankruptcy Code, 2016

All of the corporate person"s assets must be valued, sold, recovered, and realised by the liquidator. To receive funds from the sale of these assets, he must register a bank account. Within six months of collecting the proceeds, he must open a bank account to receive money from the sale of these assets. He must also administer the distribution of the proceeds to the stakeholders.

Additionally, he must save an electronic copy of these reports for at least the next eight years following the day the corporate person was dissolved.

Winding Up By A Court

A company can be wound up by the High Court at the prompting mainly of any part or creditor of the company. The Court chooses the outlet and he/she turns into an official of the Court and works under its watch. Under the Companies Act 201412, the Recorder of the Court provides a copy of the court order to end the company to the Registrar.

A petition should be introduced to the Court and while a winding-up order is made a copy will be submitted to the registrar"s office by an official of the Court. The conditions where a company might be wound up are stated in Sec. 569 of the Companies Act 201413. A company may be considered incapable of paying its obligations, under sec. 570 Companies Act 201414, on the off chance that a leaser is owed a total more prominent than �10,000 and an interest served on the company at its enlisted office has not been met in no less than 21 days to the sensible fulfilment of the creditor.

The court on winding up the company might coordinate that the liquidator follows the Creditor"s Voluntary Winding Up procedure. The outlet, when named, should distribute a notification of his/her arrangement in Iris Oifigi�il. A duplicate of some other resulting order repealing or remaining the winding up or dissolving the company should likewise be conveyed for enlistment.

Who Can Apply for Winding up of a Company by the Court:
An application for the winding up of a company is made to the court through a petition.
Furthermore, it very well may be presented by any of the accompanying under sec. 272 of the Companies Act:
  • By Company
  • By creditors (it incorporates got bank, debenture holder and a legal administrator for debenture holders)
  • By any contributory or contributories
  • By contributors (additionally called donors)
  • By central government or any individual on that behalf if a case falls under sec. 271(b) of the Companies Act, 2013

Winding Up By A Tribunal

Section 270 of the Act of 2013, has referenced the winding up of an organization in two different ways either by the tribunal or voluntarily by the actual company itself. The company in the main case gets an order by the court for winding down the company, and in the subsequent case, investors or the actual lenders permit the company"s liquidation in case of inability to pay obligations or having a misfortune in business.

Winding up of a Company by the tribunal
The company might expect to wound up by the tribunal under sec. 271 under the accompanying conditions:
  • On the off chance that the company doesn"t pay the obligations, the obligation of the bank surpassing Rs 1 lakhs is expected and neglected by the company in something like 21 days from the due date, or any execution order is passed for the creditors or tribunal has an explanation that company won"t take care of any obligations then the company would at risk for wind up.
  • On the off chance that a company has made the arrangements by passing an exceptional goal that injury is made by the tribunal.
  • In the event of debilitated companies on the off chance that no recovery and restoration is finished, the court might arrange for the winding up of an organization.
  • If the company is shaped fraudulently, or it has the motivation to accept that the movement of the business is directed deceitfully then that company is responsible to be ended up by the tribunal.
  • On the off chance that the development of the company is for any unlawful reason, or the administration of the company is at legitimate fault for wrongdoing or misfeasance, then, at that point, winding up is fundamental by the tribunal.
  • If the company neglects to submit yearly returns and budget summaries of the last five monetary years constantly then the registrar"s office makes the company a defaulter and at risk for winding up.
  • If the court has the assessment that winding up of a company is essential for the good faith of the company.

Winding up is the second method of putting an end to the life of a company. Moreover, a perfectly solvent company may be wound up. The company is not dissolved immediately at the commencement of winding up. The Act provides two kinds of winding up i.e., Compulsory winding up under the order of the Tribunal/ Court and Voluntary winding up, which itself is of two kinds, namely:
  1. Members voluntary winding up, and
  2. Creditors voluntary winding up.

It can additionally be presumed that NCLT plays a significant part in the winding up of a company. It goes to all lengths to safeguard the interest of the creditors, and debenture holders and give a decisive rule so the most common way of winding up can be followed smoothly & effectively and at the same time has tried to be transparent and easy.

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