Winding Up of Companies

Commencement of Winding Up
• Winding up of a company commences at the time of presentation of
the petition for winding up.

• Before the presentation of a winding up petition before the NCLT if

the Company has already passed a special resolution for winding up
then the date of the resolution will take effect as the date for
commencement of winding up
Procedure for winding up order
• Once a petition for winding up of a company is placed before the Tribunal,
the Tribunal may:

• i) Dismiss the Petition

• ii) Appoint a provisional liquidator till the petition is decided

• iii) Make an interim order that the Tribunal deems fit

• iv) May make an order for winding up of the company

Appointment of a Company Liquidator
• Section 275 of the Act provides that for the purposes of winding up
the NCLT is authorised to appoint a Liquidator. The terms and
conditions of the Liquidator’s appointment will be fixed by the
Tribunal

• Professionals who may be appointed as liquidators include Company

Secretaries, Chartered Accountants, Advocates etc
Winding Up Committee
• Section 277(4) requires the Company Liquidator to make an
application to the NCLT to constitute a winding up committee to assist
and monitor the progress of liquidator.

• Th winding up committee will look into the following aspects:

• 1. Taking over assets

• 2. review of audit reports
• 3. recovery of cash, property and examination of statement of affairs.
Consequences of a Winding Up Order
• 1. As soon as an order of Winding up is made the NCLT must issue an intimation of the same
to the Liquidator

• 2. The Registrar of Companies must make an endorsement of the order of winding up in his
records.

• 3. Order of winding up is deemed to be a notice of discharge to the officers and employees of

the company

• 4. All actions pending against the company in any court of law are stayed

• 5. Company Liquidator is required to take possession and control over the Company’s assets
• 6. Any sale of the company’s assets which is done without the leave of
the Tribunal will be held void.

• 7. The Board of Directors will continue to hold residuary powers for

the benefit of the company despite appointment of a liquidator

• 8. Within a period of 30 days from the date of the winding up order the
Board of Directors are required to submit audited books of accounts to
the Tribunal
Voluntary Winding Up
• Winding up of Companies by members or creditors without any intervention of the
Tribunal is called Voluntary Winding Up

• The Company and its creditors are left free to settle their affairs without having to
approach the Tribunal

• A company may be voluntarily wound up if:

• (a) If the company in a general meeting passes a resolution for voluntary winding
up if the period fixed by the Articles for duration of the company has expired

• (b) If the company passes a special resolution for being wound up voluntarily
• When a company passes a resolution for voluntary winding up it must give notice
of the resolution by advertising the same in newspapers and the principal office of
the company within a period of 14 days.

• The reasons for a voluntary liquidation are numerous. It may happen due to
unfavorable business conditions, such as operating at a loss or the market
moving in another direction, or business strategy considerations.

• In some cases, the liquidating company was only meant to exist for a limited
amount of time or for a specific purpose that has been fulfilled. It can also be
due to a key company member leaving, which causes the shareholders to
decide not to continue operations.
Declaration of Solvency
• Once a resolution for voluntary winding up is passed the majority of
the board of directors have to make a declaration to the effect that they
have verified the books of accounts of the company and that the
company is in a position to pay off its debts.

• Such a declaration has to be made within 5 weeks from the date of

passing the winding up resolution

• The declaration must also contain a statement that the winding up is

not intended to defraud any person
Meeting of Creditors
• Once a resolution for voluntary winding up is passed it is the duty of
the company to convene a meeting of the creditors.

• The creditors must be notified that the company is not being wound up
to defraud any particular person.

• If two-thirds of the creditors consent to voluntarily winding up then

the company can be wound up voluntarily
• However, if a majority of the creditors do not consent to voluntary
winding up then the company will have to make an application before
the Tribunal to commence winding up proceedings.

• Within 10 days the decision of the meeting of creditors must be

notified to the Registrar of Companies.
Consequences of Voluntary Winding Up
• 1. Effect on Status of the Company

• 2. Board’s powers cease to exist

• 3. Avoidance of transfers – Any alteration in the status of the members

made after commencement of winding up is void

• 4. Discharge of Employees
Members' voluntary liquidation

• This is when the shareholders of a company decide to put it into

liquidation and there are enough assets to pay all the debts. That is, the
company is solvent.

• A members' voluntary liquidation can only take place if the company

is solvent. The directors must make a formal declaration of solvency
Creditors’ voluntary liquidation
• This is when the shareholders of the company decide to put the
company into liquidation, but there aren't enough assets to pay the
creditors in full. ie. the company is insolvent. The liquidation begins
from the time the resolution to wind up is passed.

• If the majority of directors do not make a declaration of solvency, or

the company is insolvent, the shareholders can still vote for a
voluntary liquidation. This type of liquidation is called a creditors'
voluntary liquidation.
• To vote for a voluntary liquidation, the shareholders must:
• hold a general meeting of the company
• pass a resolution for voluntary winding up (as for members' voluntary
liquidation)
• The company can nominate an authorised insolvency practitioner as
liquidator. It must also call a meeting of creditors (usually on the same
day as the shareholders' meeting) at which they receive details of its
financial affairs. The creditors can nominate a liquidator and their
nomination will usually override that of the shareholders, if differen
• The Company Liquidator needs to avoid any conflict of interest or
lack of independence arising out of such appointment.

• For this purpose within 7 days of his appointment he must make a

declaration disclosing conflict of interest or lack of independence.

• The Company may also remove the liquidator appointed by it if it

deems fit
Powers and duties of the company liquidator
in voluntary winding up:
• 1. To settle the list of contributories

• 2. To maintain books of accounts

•
• 3. To prepare quarterly statement of accounts and file the same with the ROC

• 4. To pay the debts of the company

• 5. To call general meetings of the company for the purpose of obtaining

sanction
Duty of the Company Liquidator to report
progress
• The Company Liquidator is required to report the progress of the winding
up proceedings to the members and creditors on a quarterly basis

• He should also call a meeting of the members and creditors atleast once a
quarter

• If the liquidator is of the opinion that any fraud has been committed by
any person associated with the company then he may order an
investigation, and require the person to be present before him for the
purpose of examining him under oath
Final meeting and dissolution
• As soon as the affairs of the company are fully wound up the
Company Liquidator is required to make up a report of the winding up
to show how the entire proceedings has progressed.

• He should also call for a meeting of the company for the purpose of
laying the accounts before it. Thereafter, the members may resolve to
wind up the company
Application to the Tribunal to have questions
determined
• Under Section 322 of the Companies Act, 2013 the Company
Liquidator or any contributory or creditor may apply to the Tribunal

• (a) To determine any question arising out of winding up proceedings

• (b) To stay any proceedings

• (c) To set aside any order of attachment or execution put in force

against the company
Winding up of an unregistered company
(Section 375)
• Unregistered Companies cannot be wound up voluntarily.

• Unregistered Companies can be wound up if

• (a)the company has been dissolved or has ceased to carry on business
• (b) if the company is unable to pay its debts
• (c) If the NCLT is of the opinion that they are just and equitable
grounds for winding up
• An unregistered company shall be deemed unable to pay its debts
If:

i) If a creditor to whom the company owes more than 1 lakh rupees

has served a demand notice and the company has not repaid the
amount for three weeks

ii) If the court has passed any judgment or decree and the company is
unable to comply with it