Winding Up/Closure of Companies

Sometimes we register a company for a business idea that we wanted to implement, and for whatever reason it doesn’t work, we don’t even start work. There are also times where we register a company for a future project and often such companies are not actually operational.

Winding Up of Companies- By Tribunal

1. Compulsory Winding Up – CLOSURE of Company by Tribunal on order
2. VoluntaryWinding Up- CLOSURE  of Company by Tribunal on application by company

Compulsory Winding Up by Tribunal

Any company registered under the Companies Act 2013 which has committed an unlawful act, a fraudulent act or even if the company has taken some kind of action in connection with any illegal or unlawful conduct, the business could have been terminated by the Tribunal.

Reasons of Compulsory Wind Up by the Tribunal:

As per Companies Act 2013, a Company can be wound up by a Tribunal, if:

• The company is unable to pay its debts.
• The company has by special resolution resolved that the company be wound up by the Tribunal.
• The company has acted against the interest of the sovereignty and integrity of India, the security of the State, friendly relations with foreign states, public order, decency or morality.
• The Tribunal has ordered the winding up of the company under Chapter XIX.
• If the company has not filed financial statements or annual returns for the preceding five consecutive financial years.
• If the Tribunal is of the opinion that it is just and equitable that be company should be wound up.
• If the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purposes or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and it is proper that the company be wound up.

Process Of Compulsory Winding Up

• The petition will be filed by the company or any contributors to the company or registrar of the companies or trade creditors of the company or central or state government.
• All the documents supplemented by petition will be audited by a practising CA and the view given by the Auditor on the financial statement must be unqualified.
• The Petition should be advertised in a daily newspaper at least for 14 days and the advertisement should be in English and regional language of that area.
• File Form 11 for the order of winding up the company. Which should include – Complete audited books of the accounts up to the date of the order need to be submitted. Date, place and time for the company liquidator should be provided and Assets and the documents of the assets should be surrendered.
• If the tribunal finds all the accounts are in order and all the necessary compliance have been fulfilled, the tribunal would pass the order for dissolving the company within a period 60 days of receiving the claim.
• After the passing of the order by the tribunal, the registrar will then issue a notice to the Official Gazette affirming that such company is dissolved.

Voluntary Winding Up by the Tribunal

Winding up a company voluntarily requires a lengthy period of legal compliance to be observed. There are also statutory conditions that must be satisfied if a company is to be closed down on a voluntary basis. In the circumstances listed below, a company can be wound up voluntarily:

Voluntary winding up which may be:

1. i) Member’s Voluntary winding up.
2. ii) Creditor’s Voluntary winding up.

A members’ voluntary winding up is possible only when the company is solvent and is able to pay its debts in full. In this case, it is not necessary for the members to consult the creditors or to call their meeting. A Declaration of Solvency should be made by the Directors.

Voluntary Winding takes place when a company becomes insolvent and is unable to discharge its liabilities. To carry out voluntary winding up of private limited company procedure, a winding up a meeting need to be called where a resolution is passed to carry out the winding up procedure of the company.  The creditor’s winding up meeting should be held either of the days fixed for General meeting or on the very next day

In case of voluntary winding up, the entire process is done without court supervision. When the winding up is complete, relevant documents are filed before the court for obtaining the order of dissolution. A Voluntary winding up can be done by members or creditors. The circumstances in which company may be wound up voluntarily are:

1. a) When the period fixed for the duration of the company in its articles has expired
2. b) When an event on the happening of which the company is to be dissolved as per its articles happen.
3. c) The company resolves by special resolution at any general meeting to be voluntary winding up.

Process Of Voluntary Winding Up:-

• The company passes a special resolution (with approval of at least 3/4th of the shareholders) for a voluntary winding up of the company. However, the majority directors must agree for winding up.
• The company should also appoint a Company liquidator in the same meeting. Such an appointment should also be confirmed by a majority of the creditors (in terms of value) of the company.
• The consent of the Trade Creditors is also required to wind up the company. Trade Creditors has to give their approval that they don’t have any obligation if the company gets wound up.
• The Company has to make a Declaration of Solvency and the same must be accepted by the trade creditors of the company. The Company must show the Company’s credibility in Declaration of Solvency.
• The liquidator so appointed will carry out the winding-up proceedings and prepare a report of the winding-up on the assets, properties, debts and so on. The report shall be laid before the general meeting of the company for approval, and passing a resolution for dissolution of the company. The Company liquidator shall send a copy of the final accounts of the company and resolutions to the ROC
• The Company liquidator shall also make an application to the Tribunal for an order of dissolution of the company. Upon being satisfied with the winding up, the Tribunal shall pass an order of dissolution within 60 days of the application. A copy of the final order should be filed with the ROC.
• All the above-mentioned procedures shall be presented and filed in a prescribed form and even after the company gets wound up then also company’s name shall be prohibited for 2 years to be taken by any other applicant.
• The format for various forms and detailed procedure for winding up is prescribed in Companies (Winding up) Rules, 2020.

DISCLAIMER: The entire contents have been developed on the basis of relevant information and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors expressly disclaim all or any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document. Reader should seek appropriate counsel for their own situation. I shall not be held liable for any of the consequences directly or indirectly.

 Any other suggestions /opinions are welcomed.

Regards

Author: CS Megha Sharan (Company Secretary in Practice)

Contact No 9650082009 

Email: ezzusindia@gmail.com

Ezzus India Team