Winding up of Company

Unit II

Winding up a Company
Process of putting an end to the life of a company It is a proceeding by means of which a company is dissolved, its assets collected, its debts paid off out of the assets or from contribution from members if necessary. If any surplus is left, it is distributed among the members in accordance with their rights

Modes of Winding up
3 modes Compulsory winding up Voluntary winding up Winding up under the supervision of the Court (abolished by Companies (Amendment) Act, 2004)

Compulsory Winding Up
Wound up by an order of the Court Grounds for winding up of a company
Company by special resolution resolved to wind up Default in delivering the Statutory Report to the Registrar or in holding the Statutory Meeting Does not commence its business within a year from its incorporation Number of members reduced below 7 in case of public limited company and 2 in case of private National Company Law Tribunal may order if it is unable to pay its debts

Compulsory Winding Up
Grounds for winding up of a company
NCLT may order when it is of the opinion that it is just and equitable that the company should be wound up (instances) Dead lock in management Impossible to carry on business except at a loss Company engaged in illegal business Objective of company is impossible to carry on Minority is disregarded or oppressed Lack of confidence in directors Company has been conceived and brought forth in fraud

Persons eligible to file petition for winding up

The Company Any creditor or creditors Any Contributor or contributories All or any of the aforesaid parties, together or separately The Registrar Any person authorized by Central Govt.

Official Liquidator
Appointed by Central Government After a winding up order is received, a statement as to the affairs of the company is to be prepared and submitted to official liquidator
Assets of the company Debts and Liabilities Names and addresses of its creditors and amount Debts due to the company; names and addresses of them from whom it is due

Duties of the Liquidator

To submit preliminary report To take over companys assets To convene meetings of creditors and contributories To keep proper books To submit accounts To submit information in pending liquidation

Powers of Official Liquidator

Powers to be exercised with sanction of NCLT
To institute or defend suits, prosecution, etc on behalf and in the name of the company To carry on business till it may be necessary for beneficial winding up Sell immovable and movable property by public auction or private contract To raise money on security of any asset To do all other acts as may be necessary to wind up the company and to distribute assets

Powers of Official Liquidator

Powers to be exercised without sanction of NCLT
To use company seal for acts and execute in name of company all deeds, documents , receipts, etc To inspect the records and returns of the company on the files of the Registrar To prove, rank and claim the insolvency of any contributory and to receive dividend out of his estate To draw, accept, make and endorse bill of exchange on the name of the company To appoint agents where necessary

Voluntary Winding Up
Company and its creditors are left to settle their affairs without going to Court Most common and popular form of winding up If period is fixed by Articles for the duration of the company has expired If company passes a special resolution for any cause

Voluntary Winding Up
Types of Voluntary winding up
Members voluntary winding up and declaration of solvency
Directors at a meeting declare solvency that company will pay in full within period not exceeding 3 years

Creditors voluntary winding up

If declaration of solvency is not made then winding up is referred to as Creditors winding up Creditors appoint the liquidator, fix his remuneration and conduct the winding up

Winding up subject to supervision of Court

Any time after a company has passed resolution for voluntary winding up, the Court may make an order that voluntary winding up will continue, but subject to the supervision of the court. The Court appoints Liquidator

Consequences of Winding up
Consequences as to Shareholders (liable to pay full amount upto the face-value of the shares held by him) Consequences as to Creditors (Solvent company : all claims when proved are met fully; Insolvent company : Law of Insolvency shall apply)

Order of Payment
1. Secured Creditors 2. Costs, Charges and expenses of winding up including liquidators, remuneration 3. Preferential payments (revenues, taxes, cess and rates due; wages & salaries; fund payable for the welfare of the employees; expenses of any investigation, etc) 4. Creditors secured by floating charge 5. Unsecured or ordinary creditors 6. Members

Dissolution of a Company
Court makes an order for dissolution on the following grounds
When affairs of the company have been completely wound up When Court is of the opinion that liquidator cannot proceed with winding up for want of funds or assets When it is just and reasonable in the circumstances of the case For any reason whatsoever

Dissolution of a Company
Company is dissolved from the date of the order of the Court Within 30 days the Official Liquidator must send a copy of the Court to the Registrar (otherwise he will be penalized Rs.50 for every day)