WINDING UPWINDING UP

Divya RamanDivya RamanCorporate DepartmentCorporate Department

Winding Up of a CompanyWinding Up of a Company

Process by which life of a Company is brought to an end Process by which life of a Company is brought to an end

and property administered for the benefit of its members and property administered for the benefit of its members

and creditors.and creditors.

Administrator called Liquidator appointed to take control of Administrator called Liquidator appointed to take control of

the Company, collects assets, pays debts and distributes the Company, collects assets, pays debts and distributes

any surplus among members in accordance with their any surplus among members in accordance with their

rights.rights.

When affairs of the Company are completely wound up, When affairs of the Company are completely wound up,

dissolution of the Company takes place.dissolution of the Company takes place.

Once dissolved, the name of the Company is struck off the Once dissolved, the name of the Company is struck off the

register of the companies and its legal personality as a register of the companies and its legal personality as a

corporation comes to an end.corporation comes to an end.

Modes of Winding UpModes of Winding Up

Compulsory Winding UpCompulsory Winding Up Voluntary Winding UpVoluntary Winding Up

1.1. Members’ Voluntary winding upMembers’ Voluntary winding up

2.2. Creditors’ Voluntary winding upCreditors’ Voluntary winding up Winding up subject to Winding up subject to

supervision of Court.supervision of Court.

Grounds for Compulsory winding up Sec. 433Grounds for Compulsory winding up Sec. 433

Company passes a resolution for winding up by Court.Company passes a resolution for winding up by Court. Default made in delivering Statutory Report to the Registrar Default made in delivering Statutory Report to the Registrar

or in holding Statutory meeting.or in holding Statutory meeting. Company fails to start its business within one year of its Company fails to start its business within one year of its

incorporation or suspends its business for one year.incorporation or suspends its business for one year. Number of members reduced in the case of public company Number of members reduced in the case of public company

below 7 and that of a private company below 2below 7 and that of a private company below 2 Company unable to pay its debts.Company unable to pay its debts. Court of the opinion that it is just and equitable to wind up Court of the opinion that it is just and equitable to wind up

the Company.the Company. Court while inquiring about the rehabilitation of a sick Court while inquiring about the rehabilitation of a sick

company finds it unlikely to do so and orders for winding up company finds it unlikely to do so and orders for winding up of the same.of the same.

Company defaults in filing its balance sheet and profit and Company defaults in filing its balance sheet and profit and loss account with the Registrar for any consecutive 5 loss account with the Registrar for any consecutive 5 financial year.financial year.

If the company has acted against the sovereignty and If the company has acted against the sovereignty and integrity of India.integrity of India.

Persons entitled to apply Sec. 439Persons entitled to apply Sec. 439

CompanyCompany CreditorCreditor Contributory/sContributory/s RegistrarRegistrar Person authorized by Central Govt.Person authorized by Central Govt. Central / State Govt.Central / State Govt.

Voluntary Winding Up Sec. 484Voluntary Winding Up Sec. 484

Company wound up by members / creditors Company wound up by members / creditors without intervention of Court.without intervention of Court.

Two modes:Two modes: Passing an ordinary resolution in the general Passing an ordinary resolution in the general

meeting if the period fixed for the duration of meeting if the period fixed for the duration of the Company has expired or some event on the Company has expired or some event on the happening of which the Company has to the happening of which the Company has to be wound up.be wound up.

Passing a special resolution for any reason Passing a special resolution for any reason whatsoever.whatsoever.

Within 14 days of passing any resolution it Within 14 days of passing any resolution it must be advertised in the official gazette and must be advertised in the official gazette and in some important newspaper circulating in in some important newspaper circulating in the area of the registered office of the the area of the registered office of the Company.Company.

Two modes of Voluntary Winding UpTwo modes of Voluntary Winding Up

Members' Voluntary Winding up.Members' Voluntary Winding up.

In case of solvent companies capable of paying their In case of solvent companies capable of paying their

liabilities in full.liabilities in full.

Two Conditions:Two Conditions:

Declaration of solvency by majority of directors.Declaration of solvency by majority of directors.

Shareholders to pass an ordinary or special Shareholders to pass an ordinary or special

resolution for winding up of the Company. resolution for winding up of the Company.

Provisions applicable - Members' Winding Up Sec. Provisions applicable - Members' Winding Up Sec. 489 to 498489 to 498

Appointment of Liquidator and fixing his Appointment of Liquidator and fixing his remuneration.remuneration.

Cessation of Board's power.Cessation of Board's power. Filling up of vacancy caused by death, resignation or Filling up of vacancy caused by death, resignation or

otherwise of the liquidator.otherwise of the liquidator. Sending notice of appointment of liquidator to the Sending notice of appointment of liquidator to the

Registrar.Registrar. Power of liquidator to accept shares or like interest as Power of liquidator to accept shares or like interest as

consideration for sale of business of the Company consideration for sale of business of the Company which shall be sanctioned by a special resolution.which shall be sanctioned by a special resolution.

Liquidator's duty to call creditors' meeting in case of Liquidator's duty to call creditors' meeting in case of insolvency of the Company.insolvency of the Company.

Liquidator's duty to convene a general meeting at the Liquidator's duty to convene a general meeting at the end of each year.end of each year.

Liquidator's duty to make an account of winding up Liquidator's duty to make an account of winding up and lay the same before the final meeting.and lay the same before the final meeting.

Creditors' Voluntary Winding UpCreditors' Voluntary Winding Up

Possible in the case of insolvent companiesPossible in the case of insolvent companies

Requires holding of meeting of creditors Requires holding of meeting of creditors

Creditors get the opportunity to appoint Creditors get the opportunity to appoint

liquidator .liquidator .

Provisions applicable Sec. 499 to 506Provisions applicable Sec. 499 to 506

Board of Directors to convene meeting of creditors on Board of Directors to convene meeting of creditors on the same day or next day after the meeting at which the same day or next day after the meeting at which winding up resolution is to be proposed.winding up resolution is to be proposed.

Statement of position of Company and list of creditors Statement of position of Company and list of creditors along with their respective claims to be placed before along with their respective claims to be placed before meeting of creditors.meeting of creditors.

Copy of Creditors' resolution to be filed with the Copy of Creditors' resolution to be filed with the Registrar within 30 days of its passing.Registrar within 30 days of its passing.

Liquidator to be appointed by the creditors.Liquidator to be appointed by the creditors. Five member committee appointed by the Creditors to Five member committee appointed by the Creditors to

supervise working of liquidator.supervise working of liquidator. Fixation of remuneration by creditors of committee of Fixation of remuneration by creditors of committee of

inspection.inspection. Cessation of Board's powers on appointment of Cessation of Board's powers on appointment of

liquidator.liquidator.

As soon as the affairs of the company As soon as the affairs of the company are wound up, the liquidator shall call are wound up, the liquidator shall call a final meeting of the members of the a final meeting of the members of the company as well as that of the company as well as that of the creditors through an advertisement in creditors through an advertisement in local newspapers as well as in the local newspapers as well as in the Official Gazette at least one month Official Gazette at least one month before the meeting and place the before the meeting and place the accounts before it. accounts before it.

Within one week of meeting, liquidator Within one week of meeting, liquidator shall send to Registrar a copy of shall send to Registrar a copy of accounts and a return of resolutions. accounts and a return of resolutions.

Unregistered Companies Sec. 583Unregistered Companies Sec. 583

A Company not registered or covered under A Company not registered or covered under the Companies Act.the Companies Act.

Cannot be wound up voluntarily or subject to Cannot be wound up voluntarily or subject to supervision of Court.supervision of Court.

A creditor, contributory, or company itself by A creditor, contributory, or company itself by filing a petition, or any person authorized by filing a petition, or any person authorized by central government may institute winding up central government may institute winding up proceedings. proceedings.

In respect to other aspects, the same In respect to other aspects, the same provisions and procedure shall follow, as in provisions and procedure shall follow, as in winding up of registered company.winding up of registered company.

A foreign company, carrying on business in A foreign company, carrying on business in India, which has been dissolved , may be India, which has been dissolved , may be wound up, as unregistered company. wound up, as unregistered company.

Circumstances under which unregistered Circumstances under which unregistered company may be wound upcompany may be wound up

If the company, is dissolved, or has ceased If the company, is dissolved, or has ceased to carry on business, or is carrying on to carry on business, or is carrying on business only for the purposes of winding business only for the purposes of winding up, it's affairs, up, it's affairs,

If the company is unable to pay it's debt If the company is unable to pay it's debt If the court is of opinion, that it is just and If the court is of opinion, that it is just and

equitable, that the company, should be equitable, that the company, should be wound up. wound up.

Foreign Companies Sec. 584Foreign Companies Sec. 584

A company incorporated outside India and having a A company incorporated outside India and having a place of business in India.place of business in India.

Winding up limited to the extend of its assets in India.Winding up limited to the extend of its assets in India. In case of assets and business carried outside India, In case of assets and business carried outside India,

Indian courts shall have no jurisdiction.Indian courts shall have no jurisdiction. Winding up can only be made through court.Winding up can only be made through court. Even if the company had been dissolved or ceased to Even if the company had been dissolved or ceased to

exist in the country of it's incorporation, winding up exist in the country of it's incorporation, winding up order in this country can be made.order in this country can be made.

Pendency of a foreign liquidation does not affect the Pendency of a foreign liquidation does not affect the jurisdiction to make winding up order. The Assets can jurisdiction to make winding up order. The Assets can be of any nature and do not take to be in the be of any nature and do not take to be in the ownership of the company and can come from any ownership of the company and can come from any Source [(1944) 2 All.E.R. 556] Source [(1944) 2 All.E.R. 556]

Government CompanyGovernment Company

A company in which 51% or more shares A company in which 51% or more shares are held by Government.are held by Government.

Winding up procedure for a government Winding up procedure for a government company registered under the companies company registered under the companies Act, 1956, is nearly similar to normal Act, 1956, is nearly similar to normal winding up procedure. winding up procedure.

Courts take in to consideration, the public Courts take in to consideration, the public interest because a Govt. Company's main interest because a Govt. Company's main aim is to provide services to public.aim is to provide services to public.

Winding up subject to supervision of Court Winding up subject to supervision of Court Sec. 522 to 527Sec. 522 to 527

Court only supervises winding up procedure.Court only supervises winding up procedure. Resolution for winding up is passed by members in Resolution for winding up is passed by members in

the general meeting.the general meeting. Liberty granted to creditors, contributories or others Liberty granted to creditors, contributories or others

to apply to court for some relief.to apply to court for some relief. The court may also appoint liquidators, in addition to The court may also appoint liquidators, in addition to

already appointed, or remove any such liquidator. already appointed, or remove any such liquidator. The court may also appoint the official liquidator, as a The court may also appoint the official liquidator, as a liquidator to fill up the vacancy.liquidator to fill up the vacancy.

Liquidator is entitled to do all such things and acts, as Liquidator is entitled to do all such things and acts, as he thinks best in the interest of company. He shall he thinks best in the interest of company. He shall enjoy the same powers, as if the company is being enjoy the same powers, as if the company is being wound-up voluntarily. wound-up voluntarily.

The court also may exercise powers to enforce calls The court also may exercise powers to enforce calls made by the liquidators, and such other powers, as if made by the liquidators, and such other powers, as if an order has been made for winding up the company an order has been made for winding up the company altogether by court. (Section 526) altogether by court. (Section 526)

Priority in disposing liabilities (Sec. 529 A & Priority in disposing liabilities (Sec. 529 A & 530)530)

When the company is wound up, by any mode, the When the company is wound up, by any mode, the liabilities shall be discharged in following priority.liabilities shall be discharged in following priority.

Workman's dues. Workman's dues. Debts due to secured creditors, in case of insolvency. Debts due to secured creditors, in case of insolvency.

All , taxes, cesses and rates due from the company to All , taxes, cesses and rates due from the company to

the central government or a state govt. the central government or a state govt. All wages and salary of any employee due within four All wages and salary of any employee due within four

months. months. All holiday remuneration becoming payable to any All holiday remuneration becoming payable to any

employee. employee. All such debts shall be paid in full. If assets are All such debts shall be paid in full. If assets are

insufficient to meet them, they shall abate in equal insufficient to meet them, they shall abate in equal proportions. proportions.

ConclusionConclusion

Therefore, to conclude, Winding up of a Therefore, to conclude, Winding up of a company is the stage , where by the company is the stage , where by the company takes its last breath. It is a company takes its last breath. It is a process by which business of the company process by which business of the company is wound up, and the company ceases to is wound up, and the company ceases to exist anymore. All the assets of the exist anymore. All the assets of the company are sold, and the proceedings company are sold, and the proceedings collected are used to discharge the collected are used to discharge the liabilities on a priority basis.liabilities on a priority basis.

Thank you.Thank you.