WINDING UP OF A COMPANY

& IT’S FORMALITIES

 Introduction
o It is a process of putting an end to the life of a company.

o It is a proceeding by means of which a company is dissolved &

in the course of such dissolution its assets are collected, its debt
are paid off out of the assets of company or from the
contributions of company.
 Modes of Winding Up

Compulsory
i.e. By Voluntarily
Tribunal
 Grounds for winding up by the Tribunal
o Inability to pay debt
 To a Creditor
If any decree or order by Proved to satisfaction of the
 Sum exceeding Rs. 1 lakh
 Failure to pay within 21 court in favour of creditor Tribunal that it is unable to
days after receipt of
is returned unsatisfied in pay its debt after considering
demand
Or whole or in part the contingent & prospective
Provide adequate security
liabilities of the company
Or
Re-structure or compound
n debt to satisfaction
of h creditor
 Grounds for winding up by the Tribunal
(Continued)

o Special Resolution by the members

Under Section 27(1)(b):
 Shareholders have full freedom to decide the course of action
 Should have at least 75% of members attending & voting for
the winding up
 Grounds for winding up by the Tribunal
(Continued)
o Other grounds include:
 Acted against interest of sovereignty & integrity of India
 Scheme of revival & rehabilitation of sick company is not
approved
 Fraudulent and unlawful purpose for formation or operations
of the company.
 Defaulted in filing financial statements for preceding 5
consecutive financial years.
 Tribunal uses its discretionary powers under Section 271 (1)
(g)
Certain Clauses when Tribunal used its powers are:
 Unable to achieve any of its main objectives
 Impossible to carry on profitable business
 Assets insufficient for existing liabilities
 Deadlock in the management
 Company acts only like a bubble
 Against public interest
Petition for Winding Up by the Tribunal

Such petition can be made by:

 Company itself
 Creditors
 Contributories
 Combination of company, creditors, contributories
 Registrar
 Person
authorized by Central Government in
consequence of investigation
 Statement of affairs of the company
o If a company files for petition, it shall be accompanied with a
statement of affairs.
o The facts specified should not be of the date more than 15
days prior to the date of making the statement.
o It should furnish following information:
 Debts & Liabilities of the company
 Assets of the Company
 Name & Current residential & official address of the directors
o Advertisement of the petition:
 In not less than 14 days before the date fixed for hearing
 In one daily newspaper in English language
 In one daily newspaper in the principal regional language circulating in
the State

o Final order and its content:

Tribunal has the power to dismiss it, with or without cost, or make
interim order.
An order for winding up will in Form 11 and prescribes following duties:
 Submit complete & audited books of account
 Attend the company liquidator
 Surrender the assets of the company
 Voluntary Winding Up
It implies winding up by the members in a predefined manner
& subject to fulfilment of certain conditions by the company.

 As a result of expiration of the period for its duration fixed

by its articles, if any, or occurrence of any event in respect
of which the articles provide the company should be
dissolved

 Company passes special resolution

 Declaration of Solvency

The directors or majority of directors, in case of more than

2 directors, should make a declaration that full inquiry into
affairs of the company is conducted and make opinion that
the company has no debt or will be able to pay its debts in
full form from the proceeds of the assets.
The declaration will have no effect, unless:

 Made within 5 weeks immediately preceding the date of

passing of the resolution & is delivered to the Registrar

 Contains declaration that company is not being wound up to

defraud any person

 Accompanied with a copy of the reports of the auditors of the

company

 Accompanied with a report of valuation of assets prepared by a

registered valuer
 Meeting of creditors
Company shall cause a meeting or creditors either on the same day
or on the next day, notice for which is sent by registered post
office to the creditors.
The Board of Directors shall:

 Present a full statement of position of the affairs of the

company together with a list of creditors, if any, & estimated
amount of claims
 Appoint one of the directors to preside at the meeting
 If two third of value of
creditors are of opinion that Then

It is in the interest of all the The company should be

parties that the company be wound up voluntarily
wound

The company would not be Company will wind up in

able to pay for its debt in full Tribunal, and shall within 14
form from proceeding of days thereafter file an
assets application in Tribunal
Publication of resolution to wind up voluntarily

After passing of resolution, it shall within 14 days give notice of

resolution
 By advertisement in the Official Gazette
 In a newspaper which is in circulation of district

If this provision is contravened, a fine which may extend to

Rs.5000 everyday
 Appointment of a company liquidator
 Government prepares a panel out of which a company
liquidator is appointed for distribution of assets
 It is effective only after approval from majority of creditors
in value
 The creditors will pass a resolution in regards to the fee of
the liquidator
 Liquidator shall file a declaration within 7 days of the date
of appointment
 Notice of appointment of liquidator
Notice of appointment has to be given to the Registrar, which
contains:
 Names and particulars of the Company Liquidator
 Vacancy occurring in the office
 Name of the liquidator appointed to fill vacancy
This has to be done within 10 days of appointment or occurrence
of such vacancy
If this provision is contravened, a fine which may extend to
Rs.500 everyday
 Power & Duties of Liquidator
 Perform such functions & discharge such duties
 Settle the list of contributors
 Call general meetings of the company
 Maintain regular and proper books of accounts
 Prepare quarterly statement of accounts
 Pay debts of the company
 Observe due care and diligence
 Report of the liquidator to the Tribunal
If the liquidator is of the opinion that some fraud has been
committed , he shall immediately report to the Tribunal

Tribunal shall order investigation

Tribunal may direct the company to attend before them on a

appointed day and examine the promotion or formation or
conduct of the business
Final meeting & dissolution of the company
 Liquidator will prepare report that will include:
o Property & assets of company
o Debt fully discharged
Or
Discharged to the satisfaction of creditors
 Call a general meeting
 Within 2 weeks of meeting, liquidator shall:
o Send to registrar copies of winding up and resolutions
o File an application along with a report
Final meeting & dissolution of the company
(Continued)

 Tribunal shall pass order within 60 days to dissolve, if

found fair and just
 Liquidator will file copy with Registrar within 30 days
 Registrar will publish notice in the Official Gazette
regarding dissolution
If this provision is contravened, a fine may extend to
Rs.1 lakh
 Dissolution & further developments
 Tribunal may at any time within 2 years of the date of
dissolution, can declare it void and thereafter proceedings will
be taken as the company has not been dissolved
 It shall be the duty of liquidator, within 30 days of receiving
such order to file a certified copy of the order with the
Registrar
 If this provision is contravened, a fine may extend to Rs.
10,000 everyday