WINDING UP OF COMPANY

Flow of Contents Meaning Modes of Winding Up Liquidator Winding up VS Dissolution

Meaning The process of bringing to an end the legal personality of company as a corporate body. During this process the company ceases to carry on its usual business, the assets are realized, the proceeds are utilized in paying off debts and the surplus, if any, is distributed amongst contributories.

Modes of Termination Compulsory winding Voluntary winding up which can be either members’ voluntary winding up or creditors’ winding up

Compulsory Winding up It is one which takes place by an order of National Company Law Tribunal (NCLT). There could be numerous grounds for the decision;

Default in holding statutory meeting or statutory Report Failure to Commence Business or Suspending Business Reduction in Membership Below Statutory Minimum Inability to pay Debt Just and Equitable to order winding up

NCLT has wide discretionary powers and so may order winding up if it is of opinion that it is just and equitable to do so. However, it is exercised only in the interest of the company, its employees, shareholders and creditors and in public interest.

Some of the cases Co fails to achieve any of its main objects It is impossible to carry on its business except at a loss and there is no reasonable hope of making profits Existing assets are insufficient to meet known existing liabilities If the company is only a bubble” i.e has no real business If the object for which it is formed is illegal

Volunatary Winding up A company can be wound up voluntarily where: Time fixed by Articles has expired Articles specify an event on occurance of which the co is to be dissolved and such event occurs Company voluntarily decides to wind up by special resolution

Members’ voluntary winding up This is permissible only when the co is solvent. So, all the directors or majority have to make a declaration at the BOD meeting that they are of opinion that co has no debts at all or can pay of all debts within 3 years from the date of commencement of the process. Such call can be made before 5 weeks preceding the general meeting and need to be filed with ROC and need to accompanied by reports of auditors of co.

Creditors’ Winding Up If a company proposes to have creditors’ voluntary winding up, it will have to organize meeting of its creditors on the same day or the next day of general meeting in which the resolution for voluntary winding up is proposed to be passed.

Liquidation The proceeding of liquidation is conducted by an administrator called,” liquidator” under the supervision of the Tribunal. The liquidator can be govt.official or CAs,CSs, lawers.

Winding up VS dissolution They are not identical procedures. Former is the process of terminating the life of a company during which the corporate existence of a company continues. However, dissolution on the other hand is the end result of winding up in which the name of the company is struck off by the registrar from ROC

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