UNIT – II WINDING UP OF A COMPANY DEPARTMENT OF MANAGEMENT STUDIES UNIT – II WINDING UP OF A COMPANY Dr. G. MAHESWARAN/AP 1/21 5/22/2018

Definition The existence of a company can be terminated by means of winding up. The process of which the company is dissolved is known as winding up of a company. The winding up of a company is a proceeding in which the co business is closed down sell off it's asset and the creditor are paid. the balance of asset are distributed to the members

WINDING UP UNDER THE SUPERVISON OF THE COURT MODEs OF winding UP Under section 297 there are 3 different kinds of winding up a company. WINDING UP COMPULSORY WINDING UP VOLUNTARY WINDING UP MEMBERS CREDITORS WINDING UP UNDER THE SUPERVISON OF THE COURT

MODEs OF winding UP COMPULSORY WINDING UP BY COURT: two things must be shown before the court will make a winding order on petition. That the petitioner had the right a present the petition. That on the ground set out in the act as justifying. Section 305 of the companies ordinance that a company may be wound up by the court on the following grounds are there: If the company has, by special resolution, resolved that the company should be wound up by the court.

MODEs OF winding UP 2. if the company is unable to pays its debts. 3. the company does not commence its business within a year from its incorporation, or suspends its business for a whole year. 4.When the period fixed for duration of the co by memorandum or articles expires OR the event if any occur on the occurrence of which the memorandum or articles provide that the co is to be dissolved.

MODEs OF winding UP 5.The court is of opinion that it is just and equitable that the co should be wound up. 6.The company has being used for unlawful purposes or any purpose prejudicial to in compatible with peace, welfare, security, public order, good order morality. 7.The company is used or act against the security of the nation. 8.If the company ceases to have a member.

MODEs OF winding UP Company are not confined to the grounds specified in section 305 of the companies ordinances. An order of winding up can be made on any one of the following grounds also: Where the substance of accompany has failed. Where the company has been formed to carry out a fraud or to carry on an illegal business. If the company is a bubble i.e if it never had any business or assets.

PETITION AND APPLICATION FOR WINDING UP Who may petition for winding up: Sec 309 provides the following persons may petition for winding up of a company. The company itself an application to the court for winding up of a company shall be by petition. APPLICATION BY THE COMPANY: Allows the company to apply to have itself compulsory wound up. the general meeting is the appropriate organ to determine that the company be wound up.

APPLICATION FOR WINDING UP Application by a company for its compulsory wounding up. As voluntary winding up is quite rare.it is member wish to liquidate their company. They will do and does not involve a court hearing and its so cheaper. 2) Any creditor including a contingent or prospective creditor an application to the court for winding up of a company shall be presented by a contingent or prospective creditor.

APPLICATION BY THE CREDITOR: CREDITOR APPLICATION APPLICATION BY THE CREDITOR: Usually the vast majority of application for compulsory winding up are presented by the creditor on the ground contained. for example the co is unable to pay debts. Permits a creditor a contingent or a perspective creditor to apply for compulsory winding up even though their debts are not immediately due and payable at the date of application.

CONTINGENT AND PROSPECTIVE CREDITORS WHAT IS CONTINGENT CREDITOR: A contingent is a person to whom a debts is awed, payment of which is only due on the occurrence of some future event. WHAT IS PROSPECTIVE CREDITOR: A prospective creditor is a creditor to whom a debts is due but no immediately payable.

APPLICATION BY THE CONTRIBUTORIES: A contributory or any person who is personnel representatives of a deceased contributory or the trustee in bankruptcy. APPLICATION BY THE CONTRIBUTORIES: Defines a contributory includes: A person liable as a member or past member to contributor to assets of the company in the event of winding up and A holder of a fully paid share in the company.

EFFECTS OF WINDING UP CONSEQUENSES OF WINDING UP ORDER: The effect of order are: Every transfer or shares or alteration in the status of a member made after the commencement of winding up is void unless the court otherwise orders. Any transfer of property made within one year before presentation of winding up petition is void unless otherwise ordered by the court. On winding up order provisional manager ceases to hold office unless the court directs otherwise.

VOLUNTARY WINDING UP VOLUNTARY WINDING UP OF A COMPANY: Voluntary winding up means winding up by the members or creditors of a company without interference of the court. RESOLUTIONS FOR WINDING OF A COMPANY: The resolution may be of two types: Ordinary resolution b. Special resolution

ORDINARY AND SPECIAL RESOLUTION ORDINARY RESOLUTION: it is passed when the AOA provides that the co is wound up when the specified period elapsed. 2. SPECIAL RESOLUTION: it requires no ground for winding up and is used in any other case such as a solvent liquidator.

TYPES OF VOLUNTARY WINDING UP A voluntary winding-up may be : (a) a members' voluntary winding-up (b) a creditors' voluntary

MEMBER VOLUNTARY WINDING UP Members voluntary winding up takes place only when the company is solvent. In case of members voluntarily winding up, Board of Directors have to make a declaration to the effect, that company has no debts. Directors of the company shall call a board of directors meeting and makes a declaration of winding up accompanied by affidavit, stated that:

CREDITOR VOLUNTARY WINDING UP The company has no debts to pay, OR The company will repay its debts , if any within 3years from the commencement of winding up as specified in declaration. 2) CREDITORS VOLUNTARY WINDING UP: Where the resolution for winding up has been passed, but the directors are not in a position to give declaration on the liability of company, they may call meeting of the creditors, for the purpose of winding up.

CONTINUED……. It is the duty of board of directors to present full statement of a company affairs and list of the creditors along with their dues before the meeting of the creditors. Whatever the resolution passes by the company in meeting shall be given to the registrar within ten days of its passing. Once the company is fully wound up its assets and properties are sold or distributed shall be pay off to the creditors in equal proportion and therefore any property or money are left may be distributed among the members according to their rights and interest in the company.

DIFFERENCE BETWEEN MEMBERS AND CREDITORS WINDING UP Members voluntary winding up Creditor voluntary winding up There is no committee There is no meeting of creditors Liquidator appointed by the company in the general meeting Power can be exercised by the liquidator with the sanction of special resolution passed at the general meeting Controlled by the members themselves. May appoint a committee Meeting of contributor and there will be corresponding meeting of the creditors also Both the member ad creditor nominate the liquidator. Power can exercised with the sanction of the tribunals or committee of inspection or meeting of creditors. Controlled by the creditor

RELEVANT SECTIONS Sec 297: Modes of winding up Sec 305: Winding up of a company by court Sec 306: Company unable to pay debts Sec309: Application for winding up Sec310: Company wound up voluntary or subject to supervision of courts Sec 311: commencement of winding up by court Sec 318: Effect of winding up order

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