Winding up of Company Section 425 of the Companies Act, 1956, deals with the winding up of companies. Winding up of company is a legal procedure to dissolve the company and put an end to its life. The company ceases to be a ‘going concern’. The term winding up is defined as, ‘the process by which the life of a company is ended and its property is administered for the benefit of its members and creditors. ’ During the process of winding up, the assets of the company are sold and all the debts of the company are paid off.
An administrator, called the liquidator, is appointed to take control of the winding up process of the company. If any surplus is left, the liquidator would distribute it among the owners of the company in accordance to their rights. In case the assets are insufficient, the owners may have to compensate if the agreement so specifies. Any company does its business under the regulations set by the Act. It needs to follow the provisions of the act and work in accordance to the memorandum and articles set to govern the company’s activities. It has to consider the interests of its owners, creditors as well as the public.
If the company trespasses any of the provisions of the act, it may lead to winding up of the company. A company may have to face winding up proceedings on many accounts. The company could be wound-up either by a tribunal (through court) or voluntarily by the members of the company. A sick or potentially sick company can file a petition for voluntary winding up of company. The company must seek clearance for closure from the government. A company referred to the Board of Financial and Industrial Reconstruction can be wound-up after the order is passed by the board.
Once the amount of settlement (assets minus liabilities) is determined, the permission of RBI is taken to make the final settlement to the owners of the company. Compulsory winding up of a company may arise owing to many issues. Winding up application can be filed against the company on the grounds of unlawful activities, or inability to pay the debts, or reports are not filed as provided or not followed memorandum and articles etc. It is greatly affected by the circumstances and facts of the case. However, in the view of public, winding up of company is seen as the company being financially not good.
So, the company must try to avoid the situations which lead to a wrong impression on the minds of the public. After the entire affair is completed, the company is dissolved and its name is removed from the register of companies. The company’s legal personality comes to an end and it ceases to exist. As per Section 425 of the Act, the modes of winding up are: 1. Winding up by the court. 2. Voluntary winding up, a. Members’ Voluntary winding up. b. Creditors’ Voluntary winding up. 3. Winding up subject to supervision of the court. Winding Up By The Court.
Voluntary Winding Up. Winding Up Subject To Supervision Of Court. Winding up of Company Winding up By The Court Who Can Apply To Court, For Winding Up Petition? ( SEC 439) Following persons can apply to the court, for petition for winding up: • The company itself • The creditor • Any Contributory • Registrar • Any person authorised by central government, in case of oppression or mismanagement (397) What Orders, The Court May Pass ? (SEC 443) The court may pass any one of the following orders on hearing the winding up petition. 1. Dismiss it, with or without costs 2.
Make any interim order, as it thinks fit, or 3. Pass an order for winding up of the company with or without costs. Stay Order Where, the court has passed a winding up order, it may stay the proceedings of winding up , on an application filed by official liquidator, or creditor or any contributory. (466) DISSOLUTION OF COMPANY (481) Finally the court will order for dissolution of the company, when : 1. the affairs of the company are completely wound up, or 2. the official liquidator is unable to carry on the winding up procedure for want of funds. inding up of Company
Voluntary Winding Up A company may , voluntary wind up it’s affairs, if it is unable to carry on it’s business, or if it was formed only for a limited purpose, or if it is unable to meet it’s financial obligation, and etc. A company may voluntary wind up itself, under any of the two modes: • Members voluntarily winding up • Creditors voluntarily winding up A company may voluntarily wind up itself, either by passing : An ordinary resolution, where the purpose for which the company was formed has completed, or the time limit for which the company was formed, has expired.
Or By way of special resolution Both types of resolution shall e passed in the general meeting of the company. (484) Once the resolution of voluntarily winding up is passed, then the company may be wound up, either through : • Members voluntarily winding up, or • Creditors voluntarily winding up The only difference between the abate two, is that in case of members voluntarily winding up, Board of Directors have to make a declaration to the effect, that company has no debts. (488) Winding up of Company Winding Up Subject To Supervision Of Court Winding up subject to supervision of court, is different from “Winding up by court. ” • Here the court only supervise the winding up procedure. Resolution for winding up, is passed by members in the general meeting. It is only for some specific reasons, that court may supervise the winding up proceedings. The court may put up some special terms and conditions also. • However, liberty is granted to creditors, contributories or other to apply to court for some relief. (522) • The court may also appoint liquidators, in addition to already appointed, or remove any such liquidator.
The court may also appoint the official liquidator, as a liquidator to fill up the vacancy. • Liquidator is entitled to do all such things and acts, as he thinks best in the interest of company. He shall enjoy the same powers, as if the company is being wound-up voluntarily. • The court also may exercise powers to enforce calls made by the liquidators, and such other powers, as if an order has been made for winding up the company altogether by court. ( 526) Unregistered Companies(583) In simple words, an unregistered company, is a company which is not registered or covered under provisions of companies Act. 956 ( 582) An unregistered company, cannot be wound up voluntarily, or, subject to super vision of court. Foreign Companies(584) A foreign company, is a company which is incorporated outside India, and having a place of business in India. Winding up of such companies is only limited to the extent of it’s assets in India. In respect of assets and business carried outside India, Indian courts has no jurisdiction. Government Company A Govt. company, means a company, in which 51% or more of, shares are held by a govt. company Other Webpage: Winding up of Company:
Winding up of a company is the process whereby its life is ended and its property administered for the benefit of its creditors and members. An administrator called a liquidator, is appointed and he takes control of the company, collects its debts and finally distributes any surplus among the members in accordance with their rights. Kind of Companies can be wound up: Only a limited company can be wound-up. The term “winding-up” (or “wound-up”) bears a similar meaning of “liquidation”. It generally means that all the assets of the company would be realized (sold off and converted to cash) through a legal process in order to repay its debts.
Winding-up would bring a company to an end. A limited company is a company that is registered under the Companies Ordinance. It is a separate legal entity (i. e. it can sue or be sued in legal proceedings). The liabilities of shareholders are limited to the value of the company’s shares held by them (limited by shares). Another situation, which is not common in commercial organizations, is that the liabilities of shareholders are limited to the amount in which the shareholders have agreed to contribute to the company’s assets if the company is being wound-up limited by guarantee). An “unlimited company” or a sole trader is not a “company” in a strict sense. It is a business operated in the form of a sole proprietorship. In other words, the business is owned by an individual. A sole proprietor is solely and personally responsible for the liability of the business. A partnership is a form of business owned by two or more persons (partners). The partners are personally jointly and severally liable (i. e. every partner should be liable) for the liability of the business. An overview of winding-up procedures:
You can get a general picture on the winding-up procedures (except “voluntary Winding up) from the following steps: Firstly, issuing a written demand for debt repayment to the target company Secondly, presenting a winding-up petition to the Court and the company. Thirdly, Court hearing for the petition. Fourthly, granting of winding-up order by the Court. Fifthly, meeting of creditors and other relevant parties. Sixthly, appointment of liquidator. Seventhly, realization and distribution of company’s assets to the creditors. Eighthly, release of duties for liquidator. Lastly, dissolution of the company.
Modes of Winding up of the company: A Company may be wound up in any of the following modes: 1. By the Tribunal i. e. compulsory winding 2. Voluntary winding up, which may be (a) Member’s voluntary winding up; (b) Creditor’s voluntary winding up; Winding up by the Tribunal: o If the company has, by special resolution, resolved that the company may be wound-up by the tribunal; o If default is made in delivering the statutory report to the registrar or in holding the statutory meeting; o If the company does not commence its business within a year from its incorporation, or uspends its business for whole of a year; o If the number of members are reduced then their required number; o If the company is unable to pay its debts; o If the tribunal is of the opinion that it is just and equitable that the company should be wound up; o If the company is in default in filing up with the Registrar its balance sheet and profit and loss account for five consecutive financial years and o If the company has acted against the interests of the sovereignty and integrity of India or security of any state, friendly relation with foreign States, public order, decency and morality.
Voluntary Winding Up: In case of voluntary winding up, the entire process is done without Court Supervision. When the winding up is complete, the relevant documents are filed before the Court for obtaining the order of dissolution. A voluntary winding up may be done by the members as it may be done by the creditors. The circumstances in which a company may be wound up voluntarily are: – 1. When the period fixed for the duration of the company in its articles has expired 2. When an event on the happening of which the company is to be dissolved as per its articles happens 3.
The company resolves by a special resolution at a general meeting to be voluntarily wound up. A voluntary winding up commences from the date of the passing of the resolution for voluntary winding up. This is so even when after passing a resolution for voluntary winding up, the Court presents a petition for winding up. The effect of the voluntary winding up is that the company ceases to carry on its business except so for as may be required for the beneficial winding up thereof. Persons may petition the Court for winding up: – 1. The Company 2. Any creditor of the Company 3.
Any contributory or shareholder. Contributory means every person liable to contribute to the assets of a company in the event of its being wound up and includes holders of its fully paid shares. While every member of a company becomes a contributory, not every contributory is a member. Besides members, any person who ceased to be a member 1 year prior to the commencement of winding up is also a contributory. 4. The Registrar may petition for winding up in the following circumstances: – (i) If default is made in delivering statutory report or holding the statutory report. ii) If the company does not commence its business within one year from its incorporation or suspends its business for a whole year. (iii) If it appears to him either from the financial position of the company as disclosed in the balance sheet of the company or from the report of a special auditor or an inspector that the company is unable to pay its debts. (iv) Where the Registrar is authorized by the Central Government to petition for winding up the company. (v) Where the number of members of the company fall below the statutory minimum. (vi) Where it is just and equitable that the company be wound up. 5.
Any person authorized by the Central Government. Under section 243, if any report of an inspector appointed to investigate the affairs of the company discloses: – (i) That the business of the company is being conducted to defraud its creditors or members or for a fraudulent or unlawful purpose (ii) That the persons concerned in the formation or management have been guilty of fraud, misfeasance, and it appears to the Central Government from such report so to do, then the Central Government may authorize any person including the Registrar to petition for winding up the company on the ground that it is just and equitable to do so. . The Official Liquidator attached to a Court where a company is already being voluntarily wound up and such voluntary winding up cannot be continued with due regard to the interests of the creditors or contributors or both.
Liquidator can be released from the relevant duties in a winding-up proceedings: The liquidator can apply to the Court for the release of the duties once the followings have been accomplished: – all the assets of the company have been realized (i. e. all assets have been sold and converted to cash); – investigations related to the winding-up proceedings are completed; and a final dividend (if any) has been paid to the creditors to settle the debts The liquidator will send notices, together with a summary of the relevant receipts and payments in the liquidation, to the creditors and contributories of the company of the intention to apply to the Court for release from the duties as liquidator. At this point, any creditor or contributory has 21 days from the date of the notice to raise objection to the intended release of the liquidator. After obtaining the order for release from the court, the liquidator will file a “Certificate of Release of Liquidator” with the Registrar of Companies.
The company shall be dissolved two years after the filing of the “Certificate of Release of Liquidator”. Conclusion: After analyzing, it is found that the right to apply for winding up is the creature of statute and not of contract. But it should be noted that the winding up proceeding are greatly affected by the facts and circumstances of a particular case. The machinery of winding-up cannot be used as a pressure tactics. It is the stage, where by the company takes its last breath.