Winding up of a company means that a company is being dissolved and its assets are gathered and distributed to repay its debts and also for the benefit of the members and creditors. The Companies Act, 2013 as well as the Articles of Association (AOA) of the company usually governs it.
Winding up can be of 2 types – compulsory and voluntary. Compulsory winding up occurs generally when a company becomes insolvent and a liquidator is appointed by the Tribunal to sell and distribute the assets. Voluntary winding up occurs when the shareholders pass a resolution for it. The company may or may not be insolvent or it is possible that it has achieved its objective.
A petition to wind up the company is to be filed according to Section 272 of the Act by the Company, creditors, contributors, central or state government or by the Registrar authorized by the central government.
As soon as this process begins, a company cannot do business except to complete the process of distribution of assets and the company is dissolved after the process ends.
Grounds for winding up according to Companies Act, 2013 (Section 271):
- Company is not able to pay its debts.
- It has acted against the sovereignty or integrity of India, security of State, relations with foreign states, public order, decency or morality.
- The company has passed a special resolution for it.
- The Tribunal has ordered it.
- The Tribunal feels that it is just and equitable for it to be dissolved.
- The company has not filed financial statements or annual returns for last 5 consecutive years.
- Affairs of the company have been conducted in a fraudulent manner or it was formed for fraudulent or unlawful purposes.
Procedure for voluntary winding up:
- A resolution has to be passed in the Board meeting while assuring repayment of debts by the Directors.
- The resolution should then be passed in the General Meeting following the required procedure.
- Next, the creditors should be of the opinion that it is in the interest of all to dissolve it. In case the company won’t be able to meet its liabilities, it has to be dissolved by the Tribunal.
- A notice is to be filed with the Registrar within 10 days to appoint a Liquidator. Also, a notice of the resolution is to be published in the Official Gazette and in a newspaper where the registered office is present within 14 days.
- The certified copies of the resolution have to be filed within 30 days of the General Meeting.
- End the affairs of the company and prepare and audit the liquidator’s account.
- In the final General Meeting, a special resolution is passed to dispose off the documents of the company when it is dissolved.
- A copy of the accounts and application to the Tribunal to pass an order of dissolution has to filed within 14 days.
- The Tribunal will pass this order within 60 days of receiving the application if it deems fit.
- The liquidator will then file a copy of the order with the Registrar who will publish it in the Official Gazette.
Procedure for winding up by Tribunal:
- The Tribunal appoints an official liquidator who completes the process and also passes an order to all creditors and contributors.
- The liquidator examines the documents and records of the company and submits a report on the debts, liabilities, accounts, etc. to the Tribunal stating the need of an enquiry.
- In case no enquiry is needed, the capital has to be distributed in a just manner and the liquidator has to present an account of this to the Tribunal.
- The Tribunal inspects the documents and pronounces dissolution of the company.
Thus, a company can be dissolved through different modes and the Act has made this process easier by making various changes in the previous act of 1956. It ensures that all the assets are fairly distributed and the liabilities are disposed off.