NUST Business School

Entrepreneurship

Individual Assignment

Submitted to;
Sir Arsalan Nazir
Submitted by;
Syed Amir Hamza
BSAF 2K16 B

Date: 9th April 2020.

Winding Up
Winding up a company applies to dissolving the business of an organization. This is a legal
process in which a corporation's assets and liabilities are wounded solely by an appointed
liquidator, who then removes the Board's authority and oversees the whole corporation. The
liquidator accumulates the assets of the company, pays off its debts and distributes any surplus
left among the shareholders in compliance with their rights ("SECP", 2020). The property of the
corporation is handled in a winding-up process, for the benefit of its owners and creditors.
There may be many reasons for the company to wind up including mutual arrangements
between partners, failure, bankruptcy, partner's death, etc. Winding up is the process by which
the business is ended and is the process by which corporate life is terminated and eventually
dissolved afterward.
Question 1. Explain the three modes of winding up a company in
detail in your own words?
1. Winding up of a company by the Court
Through a court order, a corporation can be legally compelled to wind up its proprietorship
when a company registered and formed under the company's ordinance is ordered by the court
to wind up its business in existence. Litigation brought by creditors of the company can also
prompt a court order. The winding-up is in many cases the outcome of a bankruptcy proceeding
("SECP", 2020). The court can issue winding-up orders in the following circumstances:

A  s p e c ia l r e s o lu ti o n  s h a ll b e  p a s s e d  b y  t h e  C o m p a n y  t o  w in d  u p in  t h e  C o u r t . 

T h e B u s in e s s f a ils t o s e n d a s t a t u t o r y r e p o r t t o t h e R e g is t r a r o r t o h o ld a n a n n u a l g e n e r a l
m e e ti n g f o r t w o c o n s e c u ti v e y e a r s .

T h e B u s in e s s s h a ll s u s p e n d it s o p e r a ti o n s f o r o n e y e a r o r s h a ll n o t c o m m e n c e it s
o p e r a ti o n s d u r in g t h e fi r s t y e a r o f in c o r p o r a ti o n .

T h e m in im u m n u m b e r o f m e m b e r s p r o v id e d b y t h e C o m p a n y O r d in a n c e s h a ll n o t b e
m e t b y p r iv a t e ( m in im u m 2 m e m b e r s ) , p u b lic ( m in im u m 3 m e m b e r s ) o r lis t e d
B u s in e s s ( m in im u m 7 m e m b e r s )

t h e C o m p a n y s h a ll n o t (u n a b le ) t o p a y o ff it s d e b t .

T h e C o m p a n y s h a ll b e o p e r a t e d b y a n in d iv id u a l w h o d o e s n o t c o m p ly w it h t h e la w s a n d
n e e d s le g a l t r a n s a c ti o n s .

T h e C o u r t s p e c u la t e s t h a t t h e u n d e r t a k in g s h o u ld b e w o u n d u p , w h e t h e r b y fa ilu r e t o a d m in is t e r t h e
u n d e r t a k in g , r e p e a t e d lo s s e s o r u n la w f u l o r f r a u d u le n t a c ti v iti e s .
 2. Voluntary winding up of members of the company

A voluntary winding-up is considered to begin at the time the voluntary wind-up resolution is
passed in a meeting ("SECP", 2020). The business ceases to work on the very beginning of
winding up. However, for the beneficial winding up of the company, it should carry on its
operations and profits.

Voluntary Winding by the Members

In this case, (a) a special resolution is passed by the shareholders at a general meeting for the
voluntary liquidation of the company, as they declare it suitable for liquidation, and
consequently, the appointment of a liquidator is finalized in order to carry out the process, and
(b) the period specified for the company's life expires or an event occurs in which the company
is provided to be disbanded.
Steps:

T h e d ire c to rs m a k e a sta te m e n t o f so lv e n c y an d c a ll o n th e sh a re h o ld e rs to se n d it to a g e n e ra l
m e e ti n g.

T h e c o rp o ra ti o n p a sse s a sp e c ia l re so lu ti o n fo r v o lu n ta ry te rm in a ti o n a t th e g e n e ra l m e e ti n g
(A n n u a l o r E xtra O rd in a ry ) a n d a p p o in ts a liq u id a to r a n d se ts h is / h e r re m u n e ra ti o n .

T h e n o ti c e o f re so lu ti o n w ill b e su b m itt e d to th e re gistra r, o ffi c ia l G a ze tt e a n d p u b lish e d in

th e n e w sp a p e r.

T h e liq u id a to r is c o n c e rn e d th a t a ll o b lig a ti o n s w ill n o t b e fu lly sa ti sfi e d , h e / sh e w ill ca ll a

m e e ti n g w ith a ll c re d ito rs a n d p ro vid e a sta te m e n t o f th e c o m p a n y 's a sse ts a n d lia b iliti e s.

A t th e e n d o f e a c h y e a r, a liq u id a to r sh all c a ll a m e e ti n g a n d se e k a n e xte n sio n o f ti m e

b e fo re th e C o u rt, if th e w in d in g -u p p e rio d la sts o v e r a y e a r.

T h e n o ti c e o f th e fi n a l m e e ti n g sh a ll b e issu e d in th e O ffi c ia l G a ze tt e a n d n e w sp a p e r at le ast 1 0

d a ys b e fo re th e m e e ti n g d a te .

T h e liq u id a to r sh a ll fo rw a rd a co p y o f th e re p o rt a n d a c c o u n ts to th e re g istra r w ith in 7 d a y s o f th e

m e e ti n g.
Voluntary Winding by the Creditors
The business is clearly insolvent in this situation. The company thus acts to enable creditors to
protect their interest by calling all off, a company's creditors to a meeting, where the board of
directors clearly communicates the company's situation ("SECP", 2020).
Following are the steps involved:

A sp e cia l re so lu ti o n fo r vo lu n ta ry te rm in a ti o n is a d o p te d a t a g e n e ra l m e e ti n g b y a
3 /4 th vo te , a n d a liq u id a to r is n a m e d .

T h e cre d ito rs to b e in fo rm e d 2 1 d a y s p rio r to th e cre d ito rs m e e ti n g , a s w e ll a s

th e m e e ti n g n o ti c e to b e re le a se d in th e O ffi cia l G a ze tt e a n d th e d o cu m e n t.

T h e liq u id a to r sh a ll p e rfo rm h is a ssig n e d d u ti e s w h ic h in clu d e th e p re p a ra ti o n

o f cre d ito rs 'list, a cc e p ta n c e o f p ro o f, p a ym e n t o f se c u re d c re d ito rs, p a y m e n t
o f p re fe re n ti a l c laim s, e tc .

T h e liq u id a to r sh all ca ll u p o n a c re d ito r a n d g e n e ral m e e ti n g to p u t th e a u d ite d

a cc o u n ts o f th e p re v io u s ye a r b e fo re sh a re h o ld e rs a n d c re d ito rs, if th e
liq u id a ti o n p e rio d co n ti n u e s b e y o n d o n e y e a r.

T h e liq u id a to r sh all p re p a re th e a u d ite d a cc o u n ts a s th e fi n a l sta g e , a n d su b m it a fi n a l

re p o rt to th e c re d ito rs.

3. Winding up of a company subject to the supervision of the

Court

When the corporation has already started voluntary termination at the General Meeting, the
Court attempts to intervene in order to protect the interests of shareholders and investors by
way of its own will or by submitting to the Court any person entitled to appeal. The terms and
conditions of the winding-up shall be under the control of the Court, as may be required
("SECP", 2020).
Where an order for winding up is made subject to supervision, the liquidator may exercise all of
his powers without the court's permission or interference in the same way as if the company
was voluntarily wound up.

What do you understand about the winding up process?

I have learned that winding up is the process of disbanding a company and there are three
different approaches that can be taken as per the SECP’s narrative and step by step approach.
Further, an organization that stops doing business in the normal course of existence is
compelled to take the road towards winding up. Its sole purpose is to sell off stock, pay off
creditors, and distribute any remaining assets to partners or shareholders. I realize it's
somewhat different from bankruptcy and the breakup of a corporation to wind up a company
forcing it to liquidate. Winding up process is a legal procedure to end the company's affairs
which eventually leads to dissolution, while dissolution puts an end to the life of the company
as the legal entity. During the winding-up process, the company exists, it is only dissolved when
the whole process is completed by the appointed liquidator.

Q3. If you want to liquidate your company (according to the selected

company in the final business plan), what steps/methods would you take
and why?
For my business Time out, if in time there are any circumstances that I must move towards the
liquidation of the business I would be opting for Voluntary Winding up. Since the business, we
have planned to set up is in the vicinity of NUST premises and is not a "registered company" or
a "Private Ltd. Company" the rules of Partnership agreement would apply to our startup. This
means that we would call on all the partners included in the partnership to a meeting and
discuss the preposition of liquidating our company. The decision to liquidate would be based on
the past performance of the business and the loss-making nature which would be subject to the
business making losses in the foreseeable future. The meeting would then call for a vote and if
the majority that is “3/4th” of the partners vote in the favor of liquidation and outside litigator
can be appointed to draw up the liquidation agreement. The partners would be submitting their
affidavits along with the attached balance sheet, profit & loss, and the accounts of the business
pertaining to the fiscal year operations that will be evaluated by the liquidator.
Following are the steps involved in liquidating my startup:
 Hold a meeting of all my partners to discuss liquidation situation

After agreement and 3/4th Majority appoint a liqiduator so there is no conflict between any of my partners

When the liquidator will be appointed no partner would have any influence in the matter of dissolution

Send a notice to NUST as well since as a stakeholder they need to be informed of out business winding up

Final meeting to be held how the comapny has been disposed off as well as all the liabilities being paid.

References:
SECP. (2020). Retrieved 9 April 2020, from https://www.secp.gov.pk/document/winding-up-guide/?
wpdmdl=640&refresh=5e8eb195d04b91586409877