The act of “winding up” or “liquidating” a company entails ending its operations, gathering its assets, and distributing those assets to shareholders and creditors in accordance with the Act. This process ends the company’s legal existence. It is also described as a process by which a company’s existence is terminated and its assets are managed for the benefit of its shareholders and creditors. The phrase “winding up a firm” refers to various business closure methods and is used in a variety of insolvency contexts.
According to Professor Gower, the process of ending a company’s existence and administering its assets for the benefit of its members and creditors is known as winding up. One is winding down one of the processes that results in a company’s dissolution. There are three ways to dissolve a company:
In the business world, closing, dissolving, or shutting down a corporation is referred to as “winding up.” When a company is instructed to be wound up by a tribunal order, compulsory winding up occurs.
A company may be dissolved in any of the following ways:
We’ll go over each method of winding down briefly now.
Tribunal/Compulsory winding up
Dissolution wrapping up an order from the Tribunal may be used to dissolve a firm. This method of liquidation is frequently referred to as a company’s mandatory liquidation. According to Section 271 (1), the Tribunal may decide to dissolve a corporation if a petition is brought before it on one of the following grounds:
The Tribunal may issue a winding up order if a corporation passes a Special Resolution authorizing it to be wound up by the Tribunal. The decision can be passed for any reason at all. If the tribunal determines that the winding up would be against the interests of the corporation as a whole or the public, it may not order it.
The corporation may be ordered to be wound up if it has violated any of the following: I the sovereignty and integrity of India; (ii) the security of the State; (iii) friendly relations with other states; (iv) public order; (decency); or (v) morality.
The Tribunal may issue a winding-up order if, upon the Registrar’s or any other person’s request, the Tribunal determines that:
Default in Filing Financial Statements
A company may be wound up by the Tribunal if the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years.
If a company is unable to pay its debts or meet its financial obligations, it may be ordered to be wound up. A company is deemed unable to pay its debts in the following three situations, according to Section 271 (2):
The Tribunal may ISO order the winding up of a company if the Tribunal believes that it is just and equitable to do so.
The Tribunal has broad discretionary powers under this clause. When it appears to be just and equitable, the Tribunal may order the dissolution of a company. What is just and equitable is a question of fact, determined by the facts of each case. However, when making an order under this clause, the Tribunal generally considers the interests of the company, its employees, creditors, shareholders, and society.
It is referred to as voluntary winding UP’ when a company is wound up by its members and creditors without the intervention of the Tribunal.
In a voluntary winding up, the company and its creditors are free to settle their differences without having to go to the Tribunal. Although the Company, their Liquidator, or any contributory or creditor may apply to the Tribunal for directions or orders, as and when necessary, for the resolution of any question arising during the winding up process.
It should be noted that there were two types of voluntary winding up under the previous Companies Act of 1956. (l) Voluntary Winding Up of Members; and (2) Voluntary Winding Up of Creditors. ‘Members’ Voluntary Winding Up’ was a reason to buy solvent companies when they were insolvent.
The directors submitted a “declaration of solvency” to the Registrar. Insolvent companies, on the other hand, used Creditors’ Voluntary Winding Up when directors failed to make a ‘declaration of solvency.’ The above distinction was abolished by the Companies Act of 2013. There can be no voluntary winding up under the 2013 Act if a ‘declaration of Solvency’ is not made.
Section 304 states that a company may be wound up voluntarily in one of two situations:
(l) Through the adoption of an Ordinary Resolution: A company may decide to dissolve voluntarily by ordinary resolution:
(a) When the period specified in the articles of incorporation for the duration of the company has expired
(b) When the event for which the articles provide that the company shall be dissolved has occurred
(2) By Passing a Special Resolution: A company may, at any time and for any reason, pass a special resolution to be voluntarily wound up.
When a resolution for voluntary dissolution is passed, it must be advertised within 14 days passing of the resolution in the Official Gazette as well as in some important newspaper circulating in the district of the company’s registered office (Section 3071).
Because the entire process of liquidation/voluntary liquidation is dependent on the liquidator, the liquidator has been given significant powers. Because powers and responsibilities coexist, the liquidator bears both legal and moral responsibilities. The liquidator’s major powers and duties, in addition to complying with the Act, Rules, and Regulations, include the following:
The liquidator may apply to the Court for the release of duties once the following conditions are met:
The liquidator will notify the company’s creditors and contributors, along with a summary of the relevant receipts and payments in the liquidation, of his intention to apply to the Court for release from his duties as liquidator. Any creditor or contributory has 21 days from the date of the notice to object to the proposed release the liquidator’s
Following receipt of the court’s order for release, the liquidator will file a “Certificate of Release of Liquidator” with the Registrar of Companies. The company will be dissolved two years after the “Certificate of Release of Liquidator” is filed.
First, interested parties should file a petition for the company’s dissolution. The following individuals may file the petition on the company’s behalf:
The petition must be in Form WIN 1 or Form WIN 2. Such a petition must be submitted in three copies. The petition in Form WIN 3 must be accompanied by an affidavit.
The statement of affairs of the company must be provided with the petition, according to Rule 4 of the Companies (Winding Up) Rules, 2020. According to Section 272(4) or Section 274(1), the company’s statement of affairs must be submitted in the form of Form WIN 4. Such information must be current and no older than 30 days. The company’s statement of affairs must be made in duplicate and accompanied by an affidavit. Form WIN 5 must be used for the affidavit of concurrence.
The petition must be advertised for 14 days before the hearing date. Such advertisements must be written in both English and a vernacular language. The paper must be distributed in the state or Union territory where the company’s registered office is located. Form WIN 6 should be used for advertisements.
The tribunal will appoint a provisional liquidator after receiving the petition and official proof of the affidavit. The provisional liquidator’s appointment would be announced to the company in accordance with Section 273(1)(c). This must be completed on Form WIN 7. The responsibilities that the provisional liquidator must fulfil would be specified in accordance with to the company’s specifications This would be specified in Form WIN 8.
Section 277 (1) requires the registrar of companies to forward a copy of the notice to the official liquidator. This would be sent in Form WIN 9 formats, via courier, registered speed post, or any other electronic method. This must be sent within 7 days of the order being placed.
The company liquidator would receive the winding-up order in the form of Form WIN 11. Such an order must include variations in the signed and sealed form. The registrar must send this to the company within seven days. When the registrar sends it to the company, it must be in Form WIN 12 and 13.
The company liquidator would seize all assets and documents. The liquidator has the authority to seize all the company’s documents, actionable claims, and books. The company liquidator must submit a report to the tribunal within 60 days of the order.
If the company’s affairs are wound up, the company liquidator would apply to the tribunal for the company’s dissolution. This decision would be made only if the company liquidator believes it is just and reasonable to wind up a company. When an order to wind up a company is issued, a copy of the order is sent to the registrar. This must be done.
If the tribunal determines that the accounts are correct, it will issue an order for dissolution or dissolve the company. This must happen within 60 days of receiving the application. Company Dissolution. If the tribunal determines that the accounts are correct, it will issue an order for dissolution or dissolve the company. This must happen within 60 days of receiving the application.
To begin, the company must hold a general meeting to pass the resolution. However, the company must check the memorandum of association and articles of association to see if such a provision for dissolution exists. Following completion of this task, the company must call a general meeting. The members of the general meeting must vote on a special resolution. A special resolution would require 75%, or three-fourths of the members. After such resolutions are passed, the company must appoint a liquidator to carry them out.
The following step is for the company to declare its solvency status. This would display information about the company’s finances. This solvency status must also be demonstrated to trade creditors.
The liquidator would prepare a report on the company’s winding up. Such a report would include information on the company’s assets, liabilities, and other types of trade liabilities. This report must be presented to the company’s general meeting. Once this is approved, the liquidator will provide the ROC with a copy of the final accounts.
The company liquidator would also apply to the tribunal for the company’s dissolution. If the tribunal determines that the accounts are correct, it will issue an order for dissolution or dissolve the company. This must happen within 60 days of receiving the application. Such information must be submitted to the ROC.
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