WINDING UP OF A COMPANY

B.A.LL.B (Integrated Law degree course)

Company Law - I (V Semester)

“Project Work”

“WINDING UP OF A COMPANY”

Submission To: Submitted By:

Miss Mukta Jangir Kashish Rana

Faculty of Company Law-I 17RU11011

Designation: Assistant Professor Anikesh Rathi

17RU11002

Session: - 2017-2022

Semester: - V

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ACKNOWLEDGEMENT

I take this opportunity to express our humble gratitude and personal regards to Miss Mukta
Jangir for inspiring me and guiding me during the course of this project work and also for
her cooperation and guidance from time to time during the course of this project work on the
topic “WINDING UP OF A COMPANY”

Date of Submission: 12-11-2019

Name of Student: Kashish Rana

Anikesh Rathi

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What Is Winding Up?

Winding up is the process of dissolving a company. While winding up, a company ceases to
do business as usual. Its sole purpose is to sell off stock, pay off creditors, and distribute any
remaining assets to partners or shareholders. The term is used primarily in Great Britain,
where it is synonymous with liquidation.

Winding up a business is not the same as bankruptcy, although it is usually the end result of
bankruptcy. The winding up of a company is the last stage of a companies’ existence. There
may be several reasons for winding up of the company including mutual agreement among
stakeholders, loss, bankruptcy, death of promoters etc. Winding up is the process by which
the company is put to an end that is the process through which its corporate existence is
ended and it is thereafter finally dissolved.

As per section 270 of the Companies Act, 2013 a company can be wound up either by a
tribunal or by way of voluntary winding up. The provisions of the act lay down proper
procedures for the winding up of a company.

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1. Voluntary Winding Up Voluntary winding up of a company takes place by mutual

agreement of the members of the company. Voluntary winding up may take place
either by passing of a special resolution or by passing an ordinary resolution by the
members as a result of expiry of its time period as fixed by the Articles of Association
or the completion of the project or event for which it was constituted.

Usually, a voluntary winding up is affected by the passing of a special resolution by the

members of the company. The winding up commences at the time of passing the resolution.
The two types of voluntary winding up are:

1. Members’ Voluntary Winding Up: For this to happen, a company must be in a

position to pay its debts in full within 12 months after the commencement of winding
up. The directors of the company are required to file a declaration of solvency to the
above effect. The liquidator will be appointed by the company.
2. Creditors’ Voluntary Winding Up: Where a company is unable to pay its debts and
wishes to be wound up, it may do so by way of a creditors’ voluntary winding up. In
addition to the requirement of a members’ resolution to wind up the company, the
company must also convene a meeting of its creditors to consider the proposal for a
voluntary winding up. The company will appoint a liquidator, subject to any
preference the creditors may have as to the choice of liquidator.

The companies have to comply with the following procedure for winding up as provided by
the Companies act, 2013-

o The company shall conduct a meeting with at least two directors with the agenda to
initiate winding up of the company. The directors shall ensure that the company does
not have any third party debts or it will be able to repay its debts in case it’s wound
up.
o The company shall issue a written notice in this regard to conduct a general meeting
of all the shareholders for passing a resolution for the same.
o The company in the general meeting shall pass an ordinary resolution to wind up the
company by simple majority or special majority of 3/4th members.
o After passing the resolution, the company shall conduct a meeting of all the creditors.
If majority of creditors are of the opinion that winding up would be beneficial for the
company, the company may proceed with the same.
o Within 10 days of the passing of the resolution, the company shall file a notice of
winding up with the registrar of companies for appointment of an official liquidator.
o Within 14 days of the passing of the resolution, the company shall give a notice
regarding winding up of the company in the official gazette as well as advertise it in
the newspaper.
o Within 30 days of the passing of the resolution, the company shall file the certified
copies of ordinary or the special resolution passed in the general meeting as the case
may be.
o The company shall wind up the affairs of the company and prepare the liquidators
account and get the same audited.
o The company shall again conduct a general meeting in furtherance of the winding up
objective.

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o In the general meeting, the company shall pass a special resolution for the disposal of
books and all necessary documents.
o With 15 days of the passing of the resolution, the company shall submit the copy of
accounts and file an application for winding up in the tribunal for passing the order
for dissolution of the company.
o The tribunal shall, if satisfied with the documents submitted by the company, pass an
order within 60 days to effect of dissolution of the company.
o After the order to this effect has been passed by the tribunal, the official liquidator
shall file a copy of the order with the registrar of companies.
o After receiving the order passed by tribunal, the registrar shall then publish a notice in
the official Gazette declaring that the company is dissolved.

Main Effects of Voluntary Winding Up:

From the commencement of winding up, the company shall cease to carry on its business.
However, the corporate powers of the company shall continue until the company is dissolved.
The company’s shareholders cannot transfer their shares in the company without the sanction
of the liquidator.

2. Winding up subject to Supervision of the Court Winding up under the supervision

of the court if often confused with winding up by a tribunal. In such a situation, the
court only supervises the winding up proceedings subject to certain terms and
conditions imposed by the court. The court gives the liberty to the stakeholders to file
a winding up petition even when the company is being wound up voluntarily.
However, the Petitioner must prove that voluntary winding up cannot continue with
fairness to all concerned parties. The liquidator then appointed by the court must
submit a report with the registrar of companies in every three months showing the
progress of liquation

3 COMPULSORY WINDING UP:There are certain grounds upon which a company can be
wound up compulsorily. A company’s inability to pay its debts is a common ground for
presenting an originating summons for compulsory winding up. A company is deemed to be
unable to pay its debts if:

• A creditor having a claim against the company for more than S$10,000.00 has served
a written demand requiring payment, and the debt is not paid within 3 weeks;
• Execution of a judgment obtained by a creditor against a company remains unsatisfied
in part or in whole; or
• It is proved to the Court’s satisfaction that the company is unable to pay its debts.

The following parties can file an Originating Summons to wind up a company compulsorily:

• The company itself;

• A creditor of the company;
• A shareholder of the company;
• A liquidator;
• A judicial manager; or

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• Various Ministers on grounds specified under the law.

Main Effects of a Compulsory Winding Up Order:

When a company is wound up compulsorily by the Court, the winding up is deemed to have
commenced at the time of presentation of the Originating Summons for winding up. Upon the
commencement of winding up, the company’s officers have no power to carry on the
business of the company. The liquidator takes over control of the company.

Within 14 days of the winding up order, the directors and the secretary of the company must
deliver a statement of the company’s affairs to the liquidator, who must then make a report to
the Court. The statement of affairs contains details of the company’s assets and liabilities, and
enables the liquidator to carry out investigations into the affairs of the company.

After the Originating Summons for winding up is presented, the company, its creditors or its
shareholders may apply to restrain any pending proceedings against the company. Once the
winding up order is made, no action against the company may be commenced or continued
without the leave of the court. Any disposition of the company’s property and any transfer of
its shares after the commencement of winding up shall be void unless the Court orders
otherwise. The Court Fees payable for the filing of documents in respect of Compulsory
Winding Up Proceedings may be found in the II Schedule of the Companies (Winding Up)
Rules.

Winding Up By A Tribunal
Winding up of a company takes place by a tribunal by appointing a liquidator if the company
is unable to pay its debts or the company has passed a special resolution to that effect or the
company is acting against the interest or morality of India, security of state, or has spoiled
any kind of friendly relations with foreign or neighboring countries or the company has not
filed the financial statements or annual returns for preceding five consecutive years or it is
deemed just and equitable to the tribunal to wind up the company or the company has
undertaken fraudulent activities or any other unlawful business or any person or management
connected with the formation of company is found guilty of fraud or any kind of misconduct.
Under section 272 of the companies act, the petition for winding up of a company in any of
the circumstances stated above can be filed by any of the following parties-
Such winding up petition shall be filed in form no. 1, 2 or 3, as required along with the
statement of affairs in form no. 4. The statement of affairs shall contain facts up to specific
date which shall not be more than 15 days prior of the date on which the statement of affairs
is filed. Also, it shall be certified by a certified chartered accountant.

o Company
o Creditors
o Contributory or contributories
o Central or state government
o Registrar of Companies
o Any other person authorized by the central government for that purpose