Winding up of a company is defined as a process by which the life of a company is brought to an end and its property administered for the benefit of its members and creditors.

In words of Professor Gower, “Winding up of a company is the process whereby its life is ended and its Property is administered for the benefit of its members & creditors.

According to Halsburry’s Laws of England, “Winding up is a proceeding by means of which the dissolution of a company is brought about & in the course of which its assets are collected and realised; and applied in payment of its debts; and when these are satisfied, the remaining amount is applied for returning to its members the sums which they have contributed to the company in accordance with Articles of the Company.” Winding up is a legal process.

Provisions of Winding up

Section 425 to Section 520 of the Companies Act, 1956 (Act, 1956) read with Companies Court Rule, 1959, deals with the provisions of winding up. Since the provisions of the Companies Act, 2013 has not yet come into force, the provisions of the Companies Act, 1956 still governs the proceedings of winding up.

Modes of Winding Up

The  Companies Act, 1956 provides for the following three types of winding up:

  1. Winding up by the order of the Tribunal or Compulsory winding up; (Sec 433 to Sec 483 of the CA, 1956);
  2. Voluntary winding up; (Sec 484 to Sec 520 of the CA, 1956) ;
  3. Subject to the supervision of the Court.

Voluntary winding up

When a company is wound up by the members or the creditors without the intervention of Tribunal, it is called as voluntary winding up. It may take place by:-

1. By passing an Ordinary Resolution in the General Meeting if :-

  • the period fixed for the duration of the company by the articles has expired;
  • some event on the happening of which company is to be dissolved, has happened.

2. By passing a special resolution to wind up voluntarily for any reason whatsoever

WHO SHALL CARRY OUT THE WINDING UP PROCEDURE ? & WHAT SHALL BE THE PROCEDURE?

  • The Company shall appoint one or more liquidators, in a general meeting, who shall look after the affair of winding up procedure, and distribution of assets. [490 (1)]
  • The liquidator so appointed, shall be paid remuneration for his services, which shall also be fixed in general meeting [490 (2)]
  • The Company shall also give notice of appointment of liquidator to the registrar within ten days of appointment (493)
  • Once the company has appointed liquidator, the powers of Board of Directors, Managing Director, and Manager, shall cease to exist. (491)
  • The liquidator is generally given a free hand, to carry out the winding up procedure, in such a manner, as he thinks best in the interest of creditors, and company.
  • In case, the winding up procedure, takes more than one year, then liquidator will have to call a general meeting, at the end of each year, and he shall present, a complete account of the procedure, and position of liquidator (496)

WHEN AFFAIRS OF THE COMPANY ARE FULLY WOUND UP

The liquidator shall take the following steps, when affairs of the company are fully wound up : (497)

  • Call a general meeting of the members of the company, a lay before it, complete picture of accounts, wining up procedure and how the properties of company are disposed of.
  • The meeting shall be called by advertisement, specifying the time, place and object of the meeting.
  • The liquidator shall send to, the Registrar and official Liquidator (“OL”) copy of account, within one week of the meeting.
  • If from the report, official liquidator comes to the conclusion, that affairs of the company are not being carried in manner prejudicial to the interest of it’s members, or public, then the company shall be deemed to be dissolved from the date of report to the court.
  • However, if official liquidator comes to a finding, that affair have been carried in a manner prejudicial to interest of member or public, then court may direct the liquidator to investigate furthers.

DISTRIBUTION OF PROPERTY OF COMPANY ON VOLUNTARILY WINDING UP [BOTH MEMBERS AND CREDITORS VOLUNTARILY WINDING UP]

Once the company is fully wound up, and assets of the company sold or distributed, the proceedings collected are utilised to pay off the liabilities. The proceedings so collected shall be utilised to pay off the creditors in equal proportion. Thereafter any money or property left may be distributed among members according to their rights and interests in the company

STEPS FOR VOLUNTARY WINDING UP OF A COMPANY

The following are the steps for initiating a voluntary winding up of a company:

SL. NOPARTICULARSREMARKS
STEP-1Convene a Board Meeting to transact the following business:

a)  Within five weeks, immediately preceding the date of resolution for winding up, Make sure that the company can pay its debts in full within a period of three years, if put into liquidation,  if the company is put to liquidation, make a  Declaration therein to this effect in Form No. 149 under Rule 313 of the Companies (Court) Rules, 1959, and verified by an affidavit, by the Directors sworn before a Judicial Magistrate on non judicial stamp paper of Rs. 20/.

b) Ensure that the above Declaration is  accompanied by:

i) The audited Balance Sheet and Profit & Loss Account commencing from the date of last audited balance sheet and profit and loss account and ending with the latest practicable date before the date of declaration.

ii) A statement of the company’s assets and liabilities as at that date; and

iii) A copy of the report of the auditors of the company on the above two documents.  [Section 488(2)]

Note: Approve at the meeting the draft resolution for Member’s Voluntary Winding up and for appointing Liquidator and fix remuneration and also fix the date, time, place of the general meeting. [Sections 484 and 490]

STEP-2Copies of item (a) and (b) to be filed and registered with the Registrar at least 5 weeks before the General Meeting

(The declaration mentioned above should be duly verified by an affidavit before a Judicial Magistrate and deliver the same with the concerned Registrar, with the e-Form GNL-2 before the general meeting is held for passing the resolution for winding up. [Section 488(2)(a)] )

STEP-3Issue notice for the general meeting proposing a Special Resolution, with suitable Explanatory Statement. ([Section 484(1)(a) and (b)] )
STEP-4Hold the General Meeting and pass the Special Resolution for winding up. (It should be noted carefully that the winding up shall commence from the date and time of passing the requisite resolution by the members at their meeting).

Note: In case of the listed company, forward promptly to all the stock exchanges in which the company is listed, 6 copies of notice and a copy of the proceedings of the general meeting.

Hold on the same day or next day of passing of Resolution, Creditors meeting and get the majority of voting.
STEP-5

Within ten days of passing of the resolution, file notice with the ROC in e-form 62 for the appointment of the liquidator after paying the requisite fee as prescribed under Schedule X to the Companies Act, 1956 in the prescribed manner.

Note: {Confirm that a body corporate is not appointed as a liquidator. [Section 513}

STEP-6Submit to the liquidator a statement on the company’s affairs in Form No. 57 in duplicate, duly verified by affidavit in Form No. 58 within twenty one days of the commencement of winding up
STEP-7File the Special Resolution passed for winding up with Explanatory statement with the ROC within 30 days of its passing in Form No .MGT-14 with requisite fee as per Schedule X of the Act.
STEP-8Within 14 days of passing the resolution for voluntary winding up, give notice of the resolution by advertisement in the Official Gazette and also in some newspaper circulating both in English and one in local language circulating in the district where the registered office of the company is situated. [Section 485(1)]

Note: In case of a listed company, forward promptly to the stock exchange with which the company is listed, 6 copies of the resolution advertised as above.

STEP-9Simultaneously to Step 8, confirm that the Liquidator to publish in the Official Gazette the Notice of his appointment in Form No. 151 of Company Court Rules and file with Registrar together with the e-Form GNL-2the Notice of his Appointment in form 152 of Company Court Rules, 1959 within 30 days of his appointment. [Section 516 and rule 315 of Companies (Court) Rules, 1959]
STEP-10

Simultaneously to Step 8, confirms that the Liquidator gives notice of his appointment to the concerned Income -tax commissioner having jurisdiction on the company within 30 days of his appointment under Section 178 of IT Act, 1961. [No prescribed format for this, intimation. Letter would be sufficient]

Note:  If vacancy occurs by death, resignation or otherwise in the office of the liquidator, call a general meeting to fill up the vacancy and also inform to the concerned Registrar about the vacancy and repeat the formalities mentioned in Step 5, , 8 and 9.

STEP-11If the liquidator is of the opinion that the company will not be able to pay its debts in full within the period stated in the Declaration of solvency, or if the period stated in the declaration of solvency has expired without the debts being paid in full, the liquidator has to summon a meeting of the creditors, and table before the meeting a statement of the assets and liabilities of the company in Form No. 150 of the Companies (Court) Rules, 1959.  [Section 495 and rule 314 of the Companies (Court) Rules, 1959]
STEP-12Where the winding up process continues for more then a year, Liquidator should call a general meeting within 3 month from the end of every year from the date of commencement of winding up or within such longer period as the Central Government may allow, and table before the meeting an account of his acts and dealings along with statement in form No 153 of the Companies (Court) Rules, which should be duly verified in Form 154 of the Company Court Rules. [Section 496]
STEP-13If Step 11 is applicable, the meeting of creditors is also required to be like wisely called except, in case of the meeting at the end of the first year where the same shall not be required to be called unless the meeting held under item 20 hereof has been held more than 3 months before the end of the year. [Rule 328 of the Companies (Court) Rules, 1959 and section 498]
STEP-14If the winding up is not concluded within a year after its commencement then the liquidator shall file a statement with the concerned with the e-Form GNL-2 electronically Registrar twice in every year. [Rule 327 of the Companies (Court) Rules, 1959]
STEP-15Complete the winding up by realising all assets and paying off all liabilities and returning share capital and surplus, if any. The provisions of sections 426, to 432, 452, 487, 491, 494, 511, 511A, 512, 514, 515, 517 to 520, 528 to 549 and 553 to 556 and those of rules from Nos. 124 to 134 and Nos: 312 to 361 of the Companies (Court) Rules 1959 should also be noted in this respect
STEP-16As soon as the affairs of the company are fully wound -up, liquidator to prepare his account of the winding up in Form No. 156 of the Companies (Court) Rules 1959 and get the same audited. The audit report should be in the format suggested by ICAI for this purpose. [Section 497]
STEP-17Liquidator to call the final General Meeting by giving notice stating the time, place and object of the meeting, in Form No. 155 of the Companies (Court) Rules, 1959 by advertisement in the official Gazette.The Notice in the Gazette to be given not less than one month before the meeting. In addition, the notice should also be published in some newspaper circulating in the district where the registered office of the company is situated. [Section 497]
STEP-18At the meeting, place the accounts prepared under Step 16.
 If the case falls step No.11 hereof then call the creditors meeting also.

[Section 498]

STEP-19The company should also pass the special resolution for disposal of the books and papers of the company when the affairs of the company are completely wound up and it is about to be dissolved. [Section 550]
STEP-20

Within a week of the final meeting held under Step 17 (and where the case falls within item 16 then within a week of members’ meeting or the creditors’ meeting, whichever is held later), file the copy of the account with the ROC  with the e-Form GNL-2 electronically as well as with the Official Liquidator and file a return to each of them in Form 157 of the Companies (Court) Rules, 1959.

Note: If a quorum is not present in the aforesaid meeting, file the return in form no. 158 of the Companies (Court) Rules, 1959 [Rule 331 of the Companies (Court) Rules, 1959]

STEP-21File the Special Resolution with the ROC, within 30 days of passing in Form No.MGT-14 after paying the requisite fee
 The Registrar, on receiving the account and either the return mentioned in  sub-section (3) of section 497, or the return mentioned in sub-section (4) of section 497, shall forthwith register them. [Section 497(5)]
 The Official Liquidator, on receiving the account and either the return mentioned in sub-section (3) of section 497, or the return mentioned in sub-section (4) of section 497, shall as soon as may be, make a scrutiny of books and papers of the company and the liquidator and all officers, past or present, of the company shall give the Official Liquidator all reasonable facilities to do so.
 If on such scrutiny the Official Liquidator makes a report to the Court/Tribunal that the affairs of the company have not been  conducted in a manner prejudicial to the interest of its members or to the public interest, then, from the date of the submission of the report to the Court/Tribunal, the company shall be deemed to be dissolved. [Section 497(6)]
 If on such scrutiny the Official Liquidator makes a report to the Court/Tribunal that the affairs of the company have been conducted in a manner prejudicial, as aforesaid, the Court/Tribunal shall by an order direct to the Official Liquidator to make further investigations of the affairs of the company and for that purpose shall vest him with all such powers as the Court/Tribunal may deem fit. [Section 497(6A)]
 On receipt of the report of the Official Liquidator on such further investigation, the Court/Tribunal may either make an order that the company shall stand dissolved with effect from the date to be specified by the Court/Tribunal therein or make such other order as per the circumstances of the case brought out in the report. [Section 497(6B)]
 The Court/Tribunal may in a fit case declare the dissolution void within two years of the date of dissolution on application by the liquidator of the company or by any other person who appears to the Court/Tribunal to be interested.
 A person who obtains the said order of the Court/Tribunal shall file the certified copy of the Court/Tribunal’s order with the Registrar in the e-Form 21 electronically within 30 days or such further time as may be allowed by the Court/Tribunal after paying the requisite fee prescribed under Schedule X to of the Companies Act, 1956 in the prescribed manner.

Note:

1. The Registrar of Companies, on receiving the account and the return shall forthwith register them.

2. The Official Liquidator on receiving the account and the return would make a scrutiny of the books and papers of the Company to ascertain as to whether the affairs of the Company has not been carried on in a manner prejudicial to the interest of its members or public, and makes a report to the concerned High Court. From the date of the submission of the report to the concerned High Court the company is deemed to be dissolved.

CS Manohar MishraAuthor: CS Manohar Mishra-Associate Member of the ICSI, a Commerce Graduate from Calcutta University & Post Graduate from Vidyasagar University, he can be contacted at csmanoharmishra@gmail.com

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