Meaning and Modes of winding- up Commencement of winding up Consequences of winding up Official Liquidator- Power and Duties

1. Unit-5
Winding up of Companies

2. • Meaning and Modes of winding- up
• Commencement of winding up
• Consequences of winding up
• Official Liquidator- Power and Duties
• Case study- Student Presentation

3. Meaning of Winding up
Winding up is the process of selling all the assets of a business, paying off
creditors, distributing any remaining assets to the partners or shareholders
and then dissolving the business. Elsewhere in the world it is known as
liquidation.
The winding up of a corporation is a legal process that is regulated by
corporate laws as well as a company's articles of association (or a
partnership agreement in the case of a partnership). Winding up can be
compulsory or voluntary and can apply to both public and private
corporations and partnerships.
Winding up of a company is defined as the condition when the life of the
company is brought to an end. The properties of the company are
administered for the profit of its members and its creditors

4. Commencement of winding up
As per new Companies Act 2013, a company can be wound up by a tribunal in the below
mentioned circumstances
A company may, on a petition under section 272, be wound up by the Tribunal,-
(a) If the company is unable to pay its debts;
(b) If the company has, by special resolution, resolved that the company be wound up by
the Tribunal;
(c) if the company has acted against the interests of the sovereignty and integrity of
India, the security of the State, friendly relations with foreign States, public order,
decency or morality;
(d) If the Tribunal has ordered the winding up of the company under Chapter XIX;
(e) if on an application made by the Registrar or any other person authorised by the Central
Government by notification under this Act, the Tribunal is of the opinion that the affairs of
the company have been conducted in a fraudulent manner or the company was formed for
fraudulent and unlawful purpose or the persons concerned in the formation or management
of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith
and that it is proper that the company be wound up;
(f) If the company has made a default in filing with the Registrar its financial statements
or annual returns for immediately preceding five consecutive financial years; or
(g) If the Tribunal is of the opinion that it is just and equitable that the company should
be wound up.

5. The most important consequences of the winding up of a company are as follows −
As Regards the Company Itself
• Winding up doesn’t take away the existence of the company completely.
• The company continues to exist as a corporate entity till its dissolution.
• All the ongoing business of the company is administered by the liquidator during the
phase of liquidation.
As Regards the Shareholders
• Contributors − a new statutory liability comes into existence.
• Every transaction of share during the liquefaction done without the approval of the
liquidator is termed void.
As Regards the Creditors
• The creditors cannot file a case against the company except with the consent of the court.
• If the creditors already have decrees, they cannot proceed with the execution.
• They must explain their claims and justify their claims to the liquidator.
and the power of appointment of the liquidator upon winding up of the company are given
to the members.
Consequences of Winding Up

6. Consequences of Winding Up
As Regards the Management
• With the appointment of the liquidator, all the powers of the directors, chief executives and other
officers tend to cease.
• Only the powers to give notice of resolution
As Regards the Disposition of the Company’s Property
All the dispositions of the company’s properties are invalid if the dispositions are not approved by the
court or the liquidator.

7. Liquidator
A liquidator refers to an officer who is specially appointed to wind up the affairs of a company when
the company is closing—typically when the company is going bankrupt. Assets of a company are
sold by the liquidator and the resulting funds are used to pay off the company's debts.
Appointment of the Liquidator
• A liquidator for the purpose of the winding up of the company may be nominated by the creditors of
a company at the creditors’ meeting.
• However, if there are different persons nominated at the general meetings of the company and the
creditors meeting of the company, then the person nominated by the creditors is appointed as the
liquidator of the company.
Remuneration of the Liquidator
• The creditors fix the remuneration of the liquidator.
• If the creditors fail to fix the remuneration of the liquidator, the remuneration shall be fixed by the
tribunal.
• No liquidator shall join unless a respectable remuneration is fixed.
• Once fixed, the remuneration cannot be changed.

8. Powers and Duties of Liquidator
• The liquidator has a host of powers, depending on the type of liquidation that he or she is
administering. Their main responsibility is to convert any remaining assets or property of the
company into cash to repay as many creditors as possible. In addition to a wide range of
admin tasks, such as paperwork, he or she will have to investigate director conduct and
schedule meetings with creditors and directors.
The Rights and Duties of Liquidators
The specific duties of the liquidator will also include the following:
• To assess all debts and decide which should be repaid in full or in part. In some cases, claims
can be rejected
• Bring to an end any outstanding contracts or legal disputes
• Seek valuations for company assets to maximise returns for creditors
• Closely inspect the restoration of property that may have been sold at undervalue
• Keep creditors informed and involved in the decision-making process where appropriate.
• Communicate how creditor claims are progressing, the reasons why the company failed as
well as details about the redistribution of assets
• Distribute funds to creditors fairly, taking into account the repayment structure which begins
with the fees and expenses of the liquidation process itself
• Interview and report on the factors that led to the company’s demise and liquidation. Report to
the Secretary of State if he or she identifies director misconduct or fraud dissolve the company.

9. Powers of Liquidators
a) The liquidator has a wide range of powers that enable him or her to
realize or sell the company’s assets and use the proceeds to settle
debts.
b) The liquidator takes control of the business, meets deadlines for
paperwork, keeps the authorities informed, settles all claims against
the company, interviews the directors and reports on the reasons for
the liquidation.
c) He or she will also dissolve the company in other words remove the
company from the public register at Companies House.

10. Types of Liquidation

11. A Creditors' Voluntary Liquidation ("CVL")
A Creditors' Voluntary Liquidation ("CVL") is an insolvent Liquidation, meaning a
company is unable to pay its debts i.e. is considered insolvent.
A Members' Voluntary Liquidation ("MVL")
A Members' Voluntary Liquidation ("MVL") is a solvent Liquidation, meaning a
company is able to pay its debts in full, together with interest. This procedure is
usually used when the shareholders of a company wish to retire, realise their
investment or where the company is surplus to requirements.
Compulsory Liquidation
Finally, a court can make a winding-up order on the petition of an unpaid creditor or
the company itself, its director or shareholders. This is known as compulsory
Liquidation. As this is a court process, you will not be able to use Liquidations
Online to commence a compulsory Liquidation. However, if you have received a
threat of a petition or a petition itself, we may be able to help you if contact is made
at an early stage.
If you plan on liquidating a company via an MVL or CVL, you must appoint a
insolvency practitioner to act as the 'liquidator'.

12. Advantages of Company Liquidation
• It brings matters to an end for an insolvent business struggling to cope, in a legal
and organised manner.
• If the business is under pressure from creditors, the business can be closed and all
creditors will be dealt with by the appointed insolvency practitioner like us.
• It removes the responsibility from the business owners and directors.
• You will no longer need to file annual accounts, VAT accounts or tax returns once
the liquidation has been completed.
• Employees will be able to make a claim for any unpaid salary, holiday pay, notice
pay and redundancy from the government fund. However, this is subject to some
limits.
• The directors can find other employment or start another business.
• The responsibility of the directors to deal with creditors can be removed, although
any creditors which have been guaranteed personally will be unaffected.
• Any county court judgements or debt recovery pressure will be lifted, not
including any personal debts of the directors.
• HM Revenue & Customs will no longer chase the directors for PAYE or VAT.

13. Disadvantages of Liquidation
Liquidation also has its disadvantages, including;
• The business will no longer be able to trade and will likely be restricted from
using the same or similar company name again in the future.
• Any employees will lose their jobs and so will the directors.
• Shareholders may have to repay illegal dividends (not paid out of profit).
• Overdrawn directors loan accounts will have to repaid.
• Suppliers and creditors will lose money.
• Any business reputation, trading licences or other valuable assets will be lost.
• Administration may be quicker and give a better outcome for creditors.
• Any accumulated losses for tax purposes will be lost and can not be recovered.
• Any personally guaranteed debts (for example to Funding Circle) will be called in.
• A business liquidation does not usually affect the credit score of the company
directors, however the information will continue to be available on Companies
House.