An establishment exists by the legitimate procedure laid down by the laws of land and when it wants to end its life, it is just conceivable through the pre-established lawful mechanism. When a company is in torment, the management team undertakes many competing challenges hampering their ability to recognize what is usually a very stressful and complex transition. Winding is considered as the last stage of an organisation’s existence.
Winding up of any business refers to liquidation of its life and administrating its property for the benefit of its creditors and members. Dissolution of a business includes selling all assets, paying off creditors and distribution of remaining assets to the partners or shareholders. Ultimately, company has no legal existence in the eyes of law. Section 270 of the Companies Act, 2013 governs the procedure of winding up of a company in India which provides two ways of winding up i.e. voluntary winding up and winding up by the tribunal.
Classification of winding up strategies
- Winding up by the court – Insolvency of a company into a compulsory liquidation when an organization is unable to pay off its debts. 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 reign of the company.
- Voluntary winding up – A special resolution is initiated by the members or creditors of the company for voluntarily winding up the business.
- Member’s voluntary wind up – In this case, organisation has to pay its debts in full within 12 months after commencement of winding up proceedings. Consequently, the Board of Director (“Board”) file a declaration of solvency.
- Creditor’s voluntary wind up – When a company is unable to pay its debts off within 12 months and still wishes to wound up, it may proceed as creditor’s voluntary wind up.
Petition for winding up
According to section 272, a petition is presented by:
- The company;
- Any creditors or creditors including any contingent or prospective creditor or creditors;
- Any contributory (s);
- The registrar; or
- Any person authorised by the Central Government.
If a company is unable to pay its debts, the registrar shall not present a petition unless it appears to him, either from the financial condition of the company as it is divulged in its balance sheet or from the report of an inspector appointed under section 210 articulating the company is unable to pay off the debts. The registrar obtains the previous sanction of the Central Government to the presentation of a petition.
Methodology for winding up a company
- A meeting of the Board is convened. The company would resolve that there are no debts remaining of the company by passing a resolution that suggests the same.
- A notice of a general body meeting is issued proposing the resolution of the company.
- Make sure that there is atleast 3/4th of the votes in favour of closing the company.
- A meeting is conducted with the creditors of the company next day.
- File a notice to registrar for appointing a liquidator within 10 days of passing of company’s winding up resolution.
- Within 30 days of passing the winding up resolution, file certified copies of the special and the ordinary resolutions.
- Complete the financial affairs of the company with the aid of the liquidator.
- Summon a final general body meeting.
- Pass a special resolution to dispose the records and accounts of the company.
- Within 14 days of passing the special resolution, take the certified copies of the records and accounts to the National Company Law Tribunal (NCLT).
- NCLT shall then order for company’s dissolution.
- The liquidator then shall take the order and submit it to the registrar.
- The registrar shall then publish a notice that the company is dissolved.
The various provisions have been collaterally working for settlement of winding up issues. Despite the progress of winding up of companies, there are several concerns coming in front of the judiciary trying to mitigate the friction in the process of winding up of companies.
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