Winding Up of Companies
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Winding Up of Companies

Winding up of a company is defined as a process by which the life of a company is brought to an end and its property is administered for the benefit of its members and creditors. Winding up ultimately leads to the dissolution of the company.

In other words, it refers to the situation by which the dissolution of a company is brought about, and its assets are realized and applied in the payment of its debts. After satisfaction of the debts, the remaining balance, if any, is paid back to the members in proportion to the contribution made by them to the capital of the company.

In between winding up and dissolution, the legal entity of the company remains and it can be sued in a Tribunal of law.  

Dissolution can be achieved through any of the following:

  • Through Winding up;
  • Through Merger / Amalgamation Process; and
  • Through Striking Off Process

Modes of Winding-Up of company 

Compulsory Winding-Up: A petition for obligatory winding up of a company may be filed in the Tribunal by any of the following persons (Sec. 272):

  • Petition made by the Company:
    • A company can file an application to the Tribunal for its winding up when they have passed the Special majority of ¾ members to wind up the affairs of the company. The entity shall issue a written notice in this respect to conduct a general meeting of all the shareholders for approving a resolution for the same.
    • Managing Director or the directors itself cannot file any petition of winding up on their own account unless they do it on behalf of the company and with the proper authority of the members in the General Meeting, conducted in a prescribed manner.
  • Petition made by the Central Government or a State Government: On the ground that company has acted against the welfares of the independence and integrity of India, the security of the state, and friendly relations with foreign states, public order, decency or morality.
  • Petition made by the Contributories: A contributory shall be permitted to present a petition for the winding up of the company, notwithstanding that he may be the holder of fully paid-up shares or that the enterprise might not have assets available, or might not have surplus assets remaining for distribution among the holders after the fulfillment of its all due liabilities. It is no more required of a contributory making petition to have tangible interest in the assets of the company
  • Petition made by the Registrar: Registrar may with the prior authorization of the Central Government file petition to the Tribunal for the winding up the company only in the following cases:
    • If the company has made any avoidance in filing with the Registrar, its financial records, or yearly returns for immediately previous five consecutive financial years;
    • If the entity has performed against the interests of the independence and integrity of India the security of the State friendly relations with foreign Countries, public order, decorum, or morality; or
    • If on an request made by the Registrar or any other person ratified by the Central Government by notification under this Act, the Tribunal is of the opinion that the matters of an entity have been conducted in a deceitful manner or the company was formed for deceitful and unlawful purpose or the persons concerned in the formation or management of its matters have been mortified for fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound up.
  • Any person authorized by the Central Government in that behalf.

Voluntary Winding-Up: The Insolvency and Bankruptcy Code, 2016 relates to re-organization and insolvency resolution of companies, partnership firms and individuals in a time bound manner.

The Insolvency and Bankruptcy Code, 2016 relates to substances relating to the insolvency and liquidation of a company where the minimum amount of the defaulting is Rupees one lakh as of now but it may be raised up to Rupees one crore by the Government, by notification).

Code lays down two stages

  • Insolvency Resolution process: Insolvency is a commercial condition, where an entity or an individual is unable to meet the financial obligations due to excess of liabilities over assets. Whereas bankruptcy is a legal procedure where the court of law passes orders with respect to insolvency of an individual or entity and consequently passes orders for its resolution. It is the stage during which financial creditors assess whether the debtor’s business is viable to continue and the options for its re-organization and re-structuring are suggested.
  • Liquidation: Once the insolvency resolution process get fails, the liquidation processshall begin in which the assets of the company are realized at their realized value to pay off the creditors. There is a process of liquidation which is as follows:
    • Illustrating or defending any action, suit, prosecution, or any legal proceedings on behalf of the company
    • Carrying out the business of the company as far as it is beneficial for the company
    • Paying the creditors
    • Constructing any settlement or arrangements regarding the creditors
    • Compromising all the calls, debts, and liabilities, which may result in further debts on the company
    • Selling all the mobile and immobile assets of the company by conducting public auctions or by private contracts, with power to transfer the assets to a single person or to various persons in parcels
    • Performing all the acts and deeds needed for the winding up with receipts and documents using the company’s seal and name
    • Drawing, accepting, making, and endorsing any bill of exchange or promissory note in the name and on behalf of the company
    • Raising the security of the properties and money of the company

Modes of Dissolution
Dissolution of an enterprise could be brought around in any of the subsequent ways:

  • Through transfer of a company’s undertaking to another under a scheme of reconstruction or amalgamation, in that case, the transfer or entity will be liquefied by an order of the Tribunal without being wound up; and
  • Through the winding up of the company, wherein assets of the company are realized and applied towards the payment of its liabilities. The remaining, if any is circulated to the members of the company, in accordance with their rights.

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