Process by which life of a Company is brought to an end and property administered for the benefit of its members and creditors.
Administrator called Liquidator appointed to take control of the Company, collects assets, pays debts and distributes any surplus among members in accordance with their rights.
When affairs of the Company are completely wound up, dissolution of the Company takes place.
Once dissolved, the name of the Company is struck off the register of the companies and its legal personality as a corporation comes to an end.
Modes of Winding Up
Compulsory Winding Up
Voluntary Winding Up
Members’ Voluntary winding up
Creditors’ Voluntary winding up
Winding up subject to supervision of Court.
Grounds for Compulsory winding up Sec. 433
Company passes a resolution for winding up by Court.
Default made in delivering Statutory Report to the Registrar or in holding Statutory meeting.
Company fails to start its business within one year of its incorporation or suspends its business for one year.
Number of members reduced in the case of public company below 7 and that of a private company below 2
Company unable to pay its debts.
Court of the opinion that it is just and equitable to wind up the Company.
Court while inquiring about the rehabilitation of a sick company finds it unlikely to do so and orders for winding up of the same.
Company defaults in filing its balance sheet and profit and loss account with the Registrar for any consecutive 5 financial year.
If the company has acted against the sovereignty and integrity of India.
Persons entitled to apply Sec. 439
Person authorized by Central Govt.
Central / State Govt.
Voluntary Winding Up Sec. 484
Company wound up by members / creditors without intervention of Court.
Passing an ordinary resolution in the general meeting if the period fixed for the duration of the Company has expired or some event on the happening of which the Company has to be wound up.
Passing a special resolution for any reason whatsoever.
Within 14 days of passing any resolution it must be advertised in the official gazette and in some important newspaper circulating in the area of the registered office of the Company.
Two modes of Voluntary Winding Up
Members' Voluntary Winding up.
In case of solvent companies capable of paying their liabilities in full.
Declaration of solvency by majority of directors.
Shareholders to pass an ordinary or special resolution for winding up of the Company.
Provisions applicable - Members' Winding Up Sec. 489 to 498
Appointment of Liquidator and fixing his remuneration.
Cessation of Board's power.
Filling up of vacancy caused by death, resignation or otherwise of the liquidator.
Sending notice of appointment of liquidator to the Registrar.
Power of liquidator to accept shares or like interest as consideration for sale of business of the Company which shall be sanctioned by a special resolution.
Liquidator's duty to call creditors' meeting in case of insolvency of the Company.
Liquidator's duty to convene a general meeting at the end of each year.
Liquidator's duty to make an account of winding up and lay the same before the final meeting.
Creditors' Voluntary Winding Up
Possible in the case of insolvent companies
Requires holding of meeting of creditors
Creditors get the opportunity to appoint liquidator .
Provisions applicable Sec. 499 to 506
Board of Directors to convene meeting of creditors on the same day or next day after the meeting at which winding up resolution is to be proposed.
Statement of position of Company and list of creditors along with their respective claims to be placed before meeting of creditors.
Copy of Creditors' resolution to be filed with the Registrar within 30 days of its passing.
Liquidator to be appointed by the creditors.
Five member committee appointed by the Creditors to supervise working of liquidator.
Fixation of remuneration by creditors of committee of inspection.
Cessation of Board's powers on appointment of liquidator.
As soon as the affairs of the company are wound up, the liquidator shall call a final meeting of the members of the company as well as that of the creditors through an advertisement in local newspapers as well as in the Official Gazette at least one month before the meeting and place the accounts before it.
Within one week of meeting, liquidator shall send to Registrar a copy of accounts and a return of resolutions.
Unregistered Companies Sec. 583
A Company not registered or covered under the Companies Act.
Cannot be wound up voluntarily or subject to supervision of Court.
A creditor, contributory, or company itself by filing a petition, or any person authorized by central government may institute winding up proceedings.
In respect to other aspects, the same provisions and procedure shall follow, as in winding up of registered company.
A foreign company, carrying on business in India, which has been dissolved , may be wound up, as unregistered company.
Circumstances under which unregistered company may be wound up
If the company, is dissolved, or has ceased to carry on business, or is carrying on business only for the purposes of winding up, it's affairs,
If the company is unable to pay it's debt
If the court is of opinion, that it is just and equitable, that the company, should be wound up.
Foreign Companies Sec. 584
A company incorporated outside India and having a place of business in India.
Winding up limited to the extend of its assets in India.
In case of assets and business carried outside India, Indian courts shall have no jurisdiction.
Winding up can only be made through court.
Even if the company had been dissolved or ceased to exist in the country of it's incorporation, winding up order in this country can be made.
Pendency of a foreign liquidation does not affect the jurisdiction to make winding up order. The Assets can be of any nature and do not take to be in the ownership of the company and can come from any Source [(1944) 2 All.E.R. 556]
A company in which 51% or more shares are held by Government.
Winding up procedure for a government company registered under the companies Act, 1956, is nearly similar to normal winding up procedure.
Courts take in to consideration, the public interest because a Govt. Company's main aim is to provide services to public.
Winding up subject to supervision of Court Sec. 522 to 527
Court only supervises winding up procedure.
Resolution for winding up is passed by members in the general meeting.
Liberty granted to creditors, contributories or others to apply to court for some relief.
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. (Section 526)
Priority in disposing liabilities (Sec. 529 A & 530)
When the company is wound up, by any mode, the liabilities shall be discharged in following priority.
Debts due to secured creditors, in case of insolvency.
All , taxes, cesses and rates due from the company to the central government or a state govt.
All wages and salary of any employee due within four months.
All holiday remuneration becoming payable to any employee.
All such debts shall be paid in full. If assets are insufficient to meet them, they shall abate in equal proportions.
Conclusion Therefore, to conclude, Winding up of a company is the stage , where by the company takes its last breath. It is a process by which business of the company is wound up, and the company ceases to exist anymore. All the assets of the company are sold, and the proceedings collected are used to discharge the liabilities on a priority basis.