Winding-Up of a

Company
Winding up of a company is the process whereby its life is ended and its property
administered for the benefit of its creditors and members. An administrator, called
a ‘liquidator’, is appointed and he takes control of the company, collects its assets,
pays its debts and finally distributes any surplus among the members in
accordance with their rights.
In simple words, winding up means applying the assets of a company in the
discharge of its liabilities and returning any surplus to those entitled to it, subject to
the cost of doing so. The statutory process by which this is achieved is called
‘liquidation’. Winding up of a company differs from insolvency of an individual in
as much as a company cannot be made insolvent under the insolvency law. Besides,
even a solvent company may be wound up.
 Modes of Winding Up(S.425)
A company may be wound up in any of the following three ways:
• 1. Compulsory winding up under an order of the court.
• 2. Voluntary winding up.
• 3. Voluntary winding up under the supervision of the court.
 Winding Up by the Court
Court having jurisdiction. For the purpose of filing the petition for compulsory winding up,
the
following courts have jurisdiction:
(a) High court having jurisdiction in relation to the place at which the registered office of the
company is situated. The expression ‘registered office’ means the place which has longest
been the registered office of the company during the six months immediately preceding the
presentation of the petition for winding up.
(b) A District court, subordinate to the High Court on which jurisdiction has been so
conferred. However, it shall necessarily be a High Court in ‘respect of a company having a
paid up capital of 1 lakh or more (s. 10].
Example: X Ltd has its registered office in Mumbai. Mr. Y is a creditor of the
company and he resides in Chennai. He files a petition in the High Court at
Chennai. The paid up capital of the company is one crore.
The High Court at Chennai does not have the jurisdiction to entertain the petition.
It is the High Court at Mumbai to which the petition for winding up should be
made. Winding up by the court, also called compulsory winding up, may be
ordered in cases mentioned in s.433. The court will make an order for winding up
on an application by and of the persons enlisted in s.439.
 Grounds for compulsory Winding Up (S.433)

• Special Resolution: The company may by special resolution, resolve that it be wound up
by the court. The resolution may be passed for any cause whatsoever. However, the court
may not order winding up if it finds it to be opposed to public interest or the interest of
the company as a whole.
• Default in Holding Statutory Meeting: If default is made in delivering the statutory report
to the Registrar or in holding the statutory meeting, the company may be ordered to be
wound up.
• Failure to Commence Business: If a company does not commence business within a year
from incorporation or suspends business for a whole year, it may be ordered to be wound
up.
• Reduction in Membership: If the number of members is reduced below the statutory
minimum of 7 in a public company or 2 in a private company, the company may be
ordered to be wound up.
• Inability to Pay Debts: The Court may order a company to be wound up if it is unable to
pay its debts. According to s.434, a company shall be deemed to be unable to pay its debts
 Voluntary winding up.

Winding up by the creditors or members without any intervention of

the court is called ‘voluntary winding up’. In voluntary winding up,
the company and its creditors are left to settle their affairs without
going to the court for directions or orders if and when necessary.
Winding up should not be confused with insolvency. Company may
be solvent and running a prosperous business yet it may decide to be
wound up voluntarily, e.g., in pursuance of a scheme of
reconstruction or amalgamation.
A company may be wound up voluntarily:
(1) if the company in general meeting passes an ordinary resolution for voluntary winding
up where the period fixed by the Articles for the duration of the company has expired or
the event has occurred on which under the Articles the company is to be dissolved;
(2) if the company resolves by special resolution that it shall be wound up voluntarily
(s.484).
 Voluntary Liquidation of Company
Under Companies Act, 2013– Step by
Step Procedure
Step 1: Declaration of Solvency by Board / Designated Partners
The Directors of the Company has to make a Declaration of Solvency in
form of an Affidavit confirming following that:
• the company has not committed any default of repayment of debt and
• the company is solvent and it will be able to pay its debts in full from the
proceeds of assets to be sold in the voluntary liquidation; and
• the company is not being liquidated to defraud any person.
Step 2: Identify an Insolvency Professional as Liquidator
• The Board has to identify an Insolvency Professional, who is registered with
Insolvency and Bankruptcy Board of India (IBBI) to act as Liquidator to conduct the
voluntary liquidation process.
Step 3: Convene Board Meeting
Convene a meeting of Boar of Directors to decide the following:
• Approving voluntary liquidation of the company
• Appointing an Insolvency Professional as the Liquidator of the Company
• Fixing day, date and time for general meeting of the company and Issue notice of the
EGM containing the proposed resolution along with the explanatory statement.
Step 4: Convene General Meeting of Shareholders
Convene a General Meeting of shareholders within 4 weeks of Declaration of Solvency and pass the following resolutions:
• Special Resolution in general meeting for liquidating the company voluntarily or an ordinary resolution for liquidating as a
result of expiry of any fixed period of its existence in articles
• Resolution appointing Liquidator of the company
• In case the company has creditors, a resolution should also be passed by the creditors holding 2/3 rd of the debt within 7 days
of members resolution.
Step 5: Filings with Registrar of Companies and IBBI
The liquidator has to file the resolutions to Registrar of Companies and IBBI.
The voluntary liquidation proceedings are deemed to have commenced from the date of passing of the resolution by the
members subject to creditor’s approval. With the passing of Special Resolution in general meeting and appointment of
Liquidator, all powers of the board of directors, key managerial personnel and the partners of the corporate debtor shall cease to
have effect and shall be vested in the liquidator.
Step 6: Liquidator is In-charge of the company:
• The liquidator will now take over the charge of the company and proceed with further steps which shall
include realization of assets of the company, settlement of outstanding dues and distribution of proceeds to
the stakeholders. The liquidator shall have the power to consult any stakeholders who is entitled to the
distribution of the proceeds.
Step 7: Public Announcement:
• The liquidator shall make public announcement within 5 days from his appointment in Form A of Schedule I
calling stakeholders to submit their claims within 30 days from liquidation commencement date.
• It should be published in English and Regional language newspaper having wide circulation where registered
office is situated and also on the website of the company. The liquidator shall verify the claims within 30
days from last date of receipt of claims and either accept or reject the claims.
Step 8: Preliminary Report
The liquidator shall submit a preliminary report to the company within 45 days from the commencement of liquidation stating:
• the capital structure of the corporate person;
• the estimates of its assets and liabilities as on the liquidation commencement date based on the books of the corporate
person:
• whether he intends to make any further inquiry in to any matter relating to the promotion, formation or failure of the corporate
person or the conduct of the business thereof; and
• the proposed plan of action for carrying out the liquidation, including the timeline within which he proposes to carry it out and
the estimated liquidation costs.
Step 9: Opening of Bank Account
The liquidator shall open a bank account in a scheduled bank in the company’s name followed by the words “in voluntary
liquidation’ for receiving all the money’s due and realized to meet liquidation cost. All payments made above 5000 rupees shall
be done only by drawing cheque or through online banking transaction.
Step 10: No-Objection from Tax Authorities
The liquidator has to obtain a No-Objection Letter from the Tax authorities of the place where the
registered office of the company is situated.
Step 11: Realization of Assets
The liquidator shall recover and realize the assets of the company in a time-bound manner
maximizing the value of the stakeholders. The money realized shall be deposited in the bank
account opened for this purpose.
Step 12: Distribution
The money realized from the proceeds shall be distributed to the stakeholders within 6 months
from the receipt of the amount after deducting the liquidation cost. If any asset cannot be realized
due to its nature or other circumstances, liquidator may distribute it as such with the approval
from the company.
Step 13: Completion of Liquidation
The liquidator has to complete the process of liquidation within 12 months from the date of commencement of liquidation.
Step 14: Liquidation extending beyond 12 months and Annual Report
If the Liquidation extends beyond a period of 12 months, the liquidator has to hold a meeting of contributories within 15 days
from the end of 12 months and at every succeeding 12 months until the company is fully dissolved. He shall also present an
annual report showing the progress of liquidation which shall include:
• settlement of list of stakeholders,
• details of any assets remaining unsold,
• distribution made to the stakeholders,
• distribution of unsold assets made to the stakeholders;
• developments in any material litigation, by or against the corporate person;
• filing of, and developments in applications for avoidance of transactions in accordance with Chapter III of Part II of the Code
Step 15: Final Report
• Once the Liquidation process is completed, the liquidator has to prepare the Final Report containing:
• audited accounts of the liquidation
• a statement showing the assets are disposed, debts are discharged and no litigation is pending
• a sale statement of assets showing realized value, its cost, manner and mode of sale, any shortfall, to whom it is sold etc
Step 16: Filing
• The Liquidator shall then file the Final report with the Registrar and the IBBI.
Step 17: Application to NCLT
• When the affairs of the company are completely wound up, the liquidator has to make an application to NCLT for dissolution
of the company.
Step 18: Order by NCLT
• The NCLT shall then pass an order that the company shall stand dissolved from the date of the order.
Procedure of Winding Up (S.274 to S 365)
t is essential to understand a stepwise procedure of winding up under the Act. The procedure laid down
under the statute is as follows:
1. The Tribunal may direct the Company to be wound up, if it is satisfied that a prima facie case exists.
The Tribunal further directs the Company to file its objections along with a statement of its affairs
within 30 days of such order (this timeline may be extended under special circumstances).
2. Further, the Tribunal at the time of passing an order shall also appoint a provisional liquidator or
company liquidator. The Liquidator on its appointment shall file a declaration within seven days from
the date of appointment in the prescribed form, disclosing a conflict of interest or lack of
independence in respect to his appointment.
3. If the Tribunal has passed an order of winding up, then the directors and such other officers have to
submit the completed and audited books of the Company mandatorily, within 30 days of such order to
the provisional Liquidator. If the director or such other officers fails to submit the required audited
books, then they shall be personally liable for fine and imprisonment for contravening the provisions of
the Act.
• The Tribunal within 7 days of passing an order for appointment of provisional Liquidator shall intimate
the same to the Liquidator and the Registrar. On receipt of the copy of order, the Registrar shall
endorse the same and notify about the order in the Official Gazette. In case of a listed company, the
Registrar shall intimate about the order to the stock exchange or exchanges where the securities of the
Company are listed.
• The winding-up order shall be deemed to be a notice of discharge to the officers, employees, and
workmen of the Company, except when the business of the Company is continued.
• Within 3 weeks from the date of passing of winding up order, the company liquidator shall make an
application to the Tribunal for the constitution of a winding-up committee to assist and monitor the
progress of liquidation. Such committee would comprise of the Liquidator, the nominee of secured
creditors, and a professional nominated by the Tribunal.
• When the order of winding-up is passed, no suit or other legal proceedings shall be commenced, or is
pending, shall be proceeded with, by or against the Company, except with the leave of the Tribunal.
• On passing the order of winding up, the Tribunal shall pass an order to set up an advisory committee to assist the
Liquidator and report the Tribunal regarding the matters as the Tribunal may direct. The committee should not exceed
more than 12 members which is headed by the company liquidator and consisting of creditors and contributories of
the Company, or other persons in such proportion as the Tribunal may direct.
• The Liquidator has to submit a report to the Tribunal within 60 days of passing of the order of winding up. The report
should be an exhaustive one, consisting of nature and details of the assets, valuation of the assets, amount of capital
issued, existing and contingent liabilities, etc. The Liquidator shall also make a report on the steps to be taken for
maximizing the value of the assets. The Liquidator should place periodical reports before the Tribunal to update about
the Company's progress from time to time.
• The Tribunal, after scrutinizing the report by the Liquidator, shall fix a time within which the entire proceedings shall be
completed, and the Company is to be dissolved, or the Tribunal may on examination of the report order sale of the
Company as a going concern or its assets or part thereof. Accordingly, to assist the Liquidator in the sale, a sale
committee is set up comprising of creditors, promoters, and officers of the Company.
• Thereafter, the company liquidator on the order of winding up shall take into custody and control all
the property, effects and actionable claims to which the Company is or appears to be entitled. The
property shall be deemed to be in the custody of the Tribunal from the date of order of winding up.
• The Liquidator is under mandatory obligation to present the Tribunal with account of receipts and
payments of the Company, which will be audited and copy of such audit report should be filed with the
Tribunal, and other copies be delivered to the Registrar, which shall be open to inspection by any
creditor, contributory or person interested.
• The Tribunal then, orders the contributories to pay any money due to the Company from him. If any
money is due from the Company towards the contributory and the contributory has not paid in full
share amount, is allowed set off. Further, the Tribunal may issue summons to those, who are
suspected of having Company's property and examine such persons. Apart from this, if any other
person has some property of the Company, a report of the same has to be filed by the Liquidator.
• The company liquidator has the power to call the creditors to prove their
claims, upon which the Liquidator prepares a list of creditors. Each creditor is
then communicated about their claims being accepted or rejected. The
Liquidator also ensures that every invoice, order or business letter issued by
or on behalf of the Company, should contain a statement that Company is
being wound up.
• After all the formalities are over, the affairs of the Company has been
completely wound up, the Liquidator shall submit an application to the
Tribunal for dissolving the Company. If the Tribunal after the receipt of the
application is of the opinion that it is just and reasonable to dissolve the
Company, an order of dissolution is passed. A copy of such order shall be
forwarded by the Liquidator to the Registrar.