Winding Up


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Winding Up

  1. 1.
  2. 2. <ul><li>INTRODUCTION </li></ul><ul><li>MEANING OF WINDING UP: </li></ul><ul><li>Process of putting an end to the life of a company. </li></ul><ul><li>In the course of such a dissolution, its assets are collected and debts are paid off. </li></ul><ul><li>Winding up is the prior stage and dissolution is the next. </li></ul>
  3. 3. <ul><li>MODES OF WINDING UP </li></ul><ul><li>COMPULSORY WINDING UP : </li></ul><ul><li>winding up by the court </li></ul><ul><li>By special resolution[Sec 433 a] </li></ul><ul><li>Default in filing statutory report or holding statutory meeting[Sec 433 b] </li></ul><ul><li>Failure to commence business within time[Sec433 c] </li></ul><ul><li>Reduction of membership[Sec433 d] </li></ul><ul><li>Inability to pay debts [Sec433 e] </li></ul><ul><li>Just and equitable[Sec433 f] </li></ul>
  4. 4. PERSONS ELIGIBLE TO FILE PETITION <ul><li>The company </li></ul><ul><li>Any creditors </li></ul><ul><li>Any contributory (ies) </li></ul><ul><li>All or any of the aforesaid parties together or separately </li></ul><ul><li>The Registrar </li></ul><ul><li>Any person authorised by the Central Government under Sec 243 </li></ul>
  5. 5. OFFICIAL LIQUIDATOR <ul><li>Only person competent </li></ul><ul><li>There shall be attached to each High Court an official liquidator appointed by Central Government </li></ul><ul><li>Statement of affairs of the company – prescribed form and verified by affidavit </li></ul><ul><ul><li>Assets of the company </li></ul></ul><ul><ul><li>Debts and liabilities </li></ul></ul><ul><ul><li>Names, residences & occupations of creditors </li></ul></ul><ul><ul><li>Debts due to the company and the details of persons from whom they are due & amount likely to be realised </li></ul></ul><ul><ul><li>Further information as prescribed or as official liquidator require </li></ul></ul>
  6. 6. DUTIES OF LIQUIDATOR <ul><ul><li>To submit preliminary report </li></ul></ul><ul><ul><li>To takeover company’s assets </li></ul></ul><ul><ul><li>To convene meetings of creditors and contributories </li></ul></ul><ul><ul><li>To keep proper books </li></ul></ul><ul><ul><li>To submit accounts </li></ul></ul><ul><ul><li>To submit information in pending liquidation </li></ul></ul>
  7. 7. POWERS OF LIQUIDATOR <ul><li>To be exercised by sanction of court </li></ul><ul><ul><li>Institute and defend suits,prosecutions in the name and on behalf of the company </li></ul></ul><ul><ul><li>Carry on business for the benefical winding up </li></ul></ul><ul><ul><li>Sell movable & immovable property by public action or private contract </li></ul></ul><ul><ul><li>Raise money on the security of any asset of the company </li></ul></ul><ul><ul><li>Do all other acts necessary to wind up & to distribute assets </li></ul></ul><ul><li>To be exercise without the sanction of the court </li></ul><ul><ul><li>Do all acts & execute in the name of the company all deeds, receipts and documents </li></ul></ul><ul><ul><li>Inspect records & returns on the files of the Registrar </li></ul></ul><ul><ul><li>Draw, accept, make & endorse bill of exchange </li></ul></ul><ul><ul><li>To appoint agents where necessary </li></ul></ul>
  8. 8. CONTRIBUTORY <ul><li>Every person who is liable to contribute to the assets of the company in the event of its being wound up and includes the holders of fully paid up shares ( section 428) </li></ul><ul><li>List of contributors </li></ul><ul><li>A list – present members – primarily liable for everything </li></ul><ul><li>B list – past members, who ceased to be the members within 1year preceding the winding up </li></ul><ul><li>Cases in which past members are not required to contribute </li></ul><ul><ul><li>Ceases to be a member for a period of 1 yr or more </li></ul></ul><ul><ul><li>Debt or liability incurred after he ceased to be a member </li></ul></ul><ul><ul><li>Present members are able to satisfy the contributions required </li></ul></ul>
  9. 9. <ul><li>In voluntary winding up the company and the creditors settle their affairs without going to the court. </li></ul><ul><li>A company may be wound up voluntarily when </li></ul><ul><li>The period fixed by the articles for the duration of the company has expired. </li></ul><ul><li>The company has for any cause, has passed a special resolution to wind up voluntarily under (SEC 484) </li></ul>
  10. 10. TYPES OF VOLUNTARY WINDING UP <ul><li>MEMBERS’S VOLUNTARY WINDING UP </li></ul><ul><li>Under section 488 the directors in the Board meeting make a declaration by an affidavit that the company has no debts or it will be able to pay its debts within 3 years from the commencement of winding up. </li></ul><ul><li>This declaration should me made within 5 weeks immediately preceding the date of passing the resolution and shall be delivered to the registrar before that date. </li></ul>
  11. 11. CREDITOR’S VOLUNTARY WINDING UP <ul><li>When the declaration of solvency is not made it is referred to as creditors’ voluntary winding up. </li></ul><ul><li>The creditors appoint the liquidator and fix his remuneration and conduct the proceedings of winding up. </li></ul><ul><li>Section 500 to 509 deal with creditors winding up. </li></ul>
  12. 12. Winding up subject to supervision of court. <ul><li>The court may appoint an additional liquidator to supervise the winding up. The liquidator appointed by the court will have the same powers and obligations. </li></ul>
  13. 13. Consequences of Winding Up.. <ul><li>CONSEQUENCES AS TO SHAREHOLDERS : </li></ul><ul><li>A shareholder is liable to pay the full amount upto the face value of the shares held by him </li></ul><ul><li>Both past and present members are liable in the winding up of a company </li></ul>
  14. 14. Consequences as to Creditors <ul><li>In case of a solvent company, all claims of its creditors when proved are fully met </li></ul><ul><li>ORDER OF PAYMENT : all assets are realized and list of claimants is finalised, the liquidator commences making payments. First comes claims of the secured creditors, second comes costs, charges and expenses of winding up, third comes preferential creditors, fourth comes creditors secured by floating charge, fifth comes unsecured or ordinary creditors and at the end comes members or contributories </li></ul>
  15. 15. PREFERENTIAL PAYMENTS : payments made to certain unsecured creditors in priority to all other debts on winding up of the company. These payments are : <ul><li>All revenues, taxes, cesses and rates due from the company to the Central or State Government or to a local authority </li></ul><ul><li>All wages or salary of an employee </li></ul><ul><li>All accrued holiday remuneration </li></ul><ul><li>Contributions payable </li></ul><ul><li>Amounts under Worker’s Compensation Act 1923 </li></ul><ul><li>Sums due to an employee from provident fund, pension fund, gratuity fund, etc </li></ul><ul><li>Expenses of any investigation held </li></ul>
  16. 16. Dissolution of a Company <ul><li>When the affairs of a company have been completely wound up </li></ul><ul><li>When the court is of the opinion that the liquidator cannot proceed with the winding up for want of funds or assets </li></ul><ul><li>When it is just and reasonable that such an order be made </li></ul><ul><li>For any other reason whatsoever </li></ul>
  17. 17. Defunct Company <ul><li>Means a company which has never commenced business or which has ceased to carry business </li></ul><ul><li>Under section 560, the Registrar of Companies can strike the name of such a company from the companies’ register </li></ul><ul><li>He has to send to the company by post a letter enquiring whether the company is carrying on business or is in operation </li></ul><ul><li>If no reply is received within one month, he must send within the next 14 days a registered letter to warn the company </li></ul><ul><li>If no satisfactory reply is received within one month, he must send to the company by post and publish in the official gazette that the company’s name will be striked off within three months and hence the company will be dissolved </li></ul>