Winding Up of a Company

Winding up of a company is a process that allows the affairs of a company to wound up in a manner for dissolving and putting an end to the life of a company.

The company’s assets and liabilities are administered for the benefit of its shareholders and creditors of the company.

The administrator is called a liquidator who realizes its assets and pays the debts and distributes the surplus, among the members or creditors according to their rights provided in the article of the company.

Winding up is a lawful process for dissolving the business of a company.

Types of Winding Up of a Company Under Companies Act, 2013

There are two types of winding up, according to the relevant section of the Companies Act, 2013 are

1. Compulsory winding up by way of the tribunal

The Winding up by a creditor of the company takes place at an event where external members are involved in the winding up. Creditors’ voluntary winding up can be transformed into winding up by way of a tribunal under the relevant section of the Companies Act, 2013.

1. Member’s Voluntary winding up It is possible only in cases when the company is solvent.
2. Creditor’s Voluntary winding up The Companies Act, 2013 provides that where two-thirds in value of creditors of the company are of the opinion that the company may not be able to pay for its debts in full out of the proceeds of assets sold in Voluntary winding up by the tribunal, the company shall within fourteen days after filing an application before the tribunal.

Process of Winding Up of a Company in Company Law

The interested individuals shall file a petition for the winding up of the company. The following can also file the petition on part of the company

• Trade creditors of the company
• Company itself
• Any form of the contributor to the company
• Any of the three mentioned categories
• Government authority such as the Central government or the state government.
• Registrar of Companies

The petition is being submitted in Form WIN-1/WIN-2. Such a petition must be submitted in Triplicate. An affidavit must be accompanied by the petition in Form WIN 3.

Step 2: Statement of Affairs of the Company

Under the Winding up of a company, as per rule 4 of the Companies (winding up) Rules, 2020, the statement of affairs of the company is provided with the petition. As per the relevant section of the Companies Act, 2013, the statement of affairs of the company must be submitted in the format of Form WIN 4. Such information must be up to date and not be more than thirty days. The Statement of Affairs of the company must be made in duplicate form and must be accompanied by an affidavit. The affidavit of concurrence shall be in Form WIN 5.

Step 3: Advertisement

The petition must be advertised for the winding up of a company a period of 14 days before the date of hearing. Such advertisements must be in English and a vernacular language. The paper shall be circulated in the respective state or the Union territory where the registered office of the company is located. The format of the advertisement should be in Form WIN 6.

Step 4: Appointment of Provisional Liquidator

After the submission of the petition with the proof of the affidavit, then the tribunal will appoint a provisional liquidator. As per the relevant section of the Companies Act, 2013, the notice of appointment of the Provisional liquidator would be made to the company in the form Winding up of a company WIN-7. The responsibilities which have to be carried out by the Provisional liquidator would be mentioned according to the requirements of the company mentioned in Form WIN 8.

Step 5: Send Notice to the Provisional Liquidator

As per the relevant section of the Companies Act, 2013, the registrar of companies will send a copy of the notice to the official liquidator. Form WIN 9 is the format in which the notice is sent through courier or registered speed post or any other electronic method. This must be sent within seven days of the order.

Step 6: Winding Up Order

The Winding up of a company order is made and would be sent to the company liquidator in the format of Form WIN 11. Such orders must contain respective variations in the signed and sealed form. This is sent within a period of 7 days to the company by the registrar. When the form is sent by the ROC to the company then it shall be in Form WIN 12 and 13.

Step 7: Custody of Property

All the assets will be taken by the company’s liquidator. The liquidator has the power to take custody of the documents, their actionable claims and books of the company. A report of the Winding up of a company must be provided by the company liquidator to the tribunal within 60 days of the order.

Step 8: Affairs of the Company

If the company’s affairs are wound up, the company’s liquidator will make an application to the tribunal for the dissolution. This will only be made when the company liquidator feels, it is just and reasonable for winding up a company. The order is passed for winding up, a copy of the order would be sent to the registrar within 30 days of the order of winding up of a company.

Step 9: Dissolving the Company

If the tribunal finds out that the accounts are in order, then it would pass on an order for the dissolution of the company. This must occur within 60 days of receiving the application.

Procedure of Voluntary Winding up

The procedure would provide winding up a company through the voluntary method:

• Passing of Special Resolution

  The company shall conduct a general meeting to pass the resolution. However, the company has to check the memorandum of association and articles of association when such provision related to dissolution is present. After it is carried out then the winding up of a company notes has to be arranged for a general meeting. A special resolution must be passed by the members in the general meeting. A special resolution requires 75% or three fourth of the majority of members. After such a resolution is passed, the company has to appoint a liquidator for carrying out the procedure for voluntary winding up. The majority of the creditors are provided with representation during the process of winding up.

• Declaration of Solvency

  The next step for the company has to declare the solvency status. The information is shown on finances available with the company. Such solvency status is shown to the trade creditors.

• Preparation of Winding Up of a Company pdf Report

  The liquidator who is appointed shall prepare a report related to the winding up a company. Such a report would have information on the assets, liabilities, and other forms of trade liabilities that are associated with the company. Such a report is to be placed before the general meeting of the company. When it is approved, the liquidator will provide a copy of the accounts which is finalized to the registrar.

• Application to Tribunal

  The company liquidator would apply to the tribunal for the dissolution of the company. If the tribunal finds out that the accounts are in order then it would pass an order for the dissolution of the company. This occurs within 60 days of receiving the application. The information is to be filled with the ROC.

Required Documents for Winding up of a Company

The following documents required for winding up a company are given:

• Certificate of Incorporation of the company
• The memorandum (MOA) & Articles of association (AOA) of the company
• Certificate related to the closure of the bank account of the company
• Copy of the Board resolution
• Copy of the resolution of the creditors stating that three-fourths of members have accepted
• Statement of accounts of the company
• Winding up petition Form WIN 1 or WIN 2.
• Statement of Affairs of the company in Form WIN 4.
• Affidavit of concurrence in Form WIN 5.
• Advertisement in the Vernacular newspaper From WIN 6.
• Appointing Provisional liquidator through Form WIN 7 and WIN 8.
• Form STK-2 (Procedure for winding up of a company i.e., defunct or dormant)

Compulsory Ground by Court

The Inability to pay debts is given in the Insolvency and bankruptcy code 2016

1. Failure to Pay Demand

If a company is holding a loan of more than 1 lakh and the creditor sends notice to pay the amount then in such case, formal notice has to be sent by the creditor. If within 21 days of such notice, the company is not able to pay or doesn’t reply or deposit the security, neither it is trying to restructure the debt then it is called a failure to pay demand.

2. Decreed Debt

Failure to do the execution of winding up of a company by court’s demand. It means the court has given the order to pay and there is a failure of obeying the court’s order, which can also be known as contempt of the court’s order/ failure to satisfy the decree/ company is not able to satisfy the decree of the court.

3. Commercial Insolvency

The auditors may feel that there is an increase in liability and assets are not increasing in the same proportion. Therefore, they feel that the company is detrimental to the interest of the public. The financial form of the liability is increasing and assets are not increasing. Insolvency is likely to happen. For better presentation use the winding up of a company ppt. At this point, the company is not insolvent but before such an event happens the company thinks to declare insolvency so that they can pay the shareholder, and creditors to pay their taxes & etc.

4. Special Resolution Resolved

75% of the majority shareholders pass the resolution for winding up of the company but execution takes place by NCLT/ discretion of NCLT to govern the winding up.

5. When a company is acting against the sovereignty of India and friendly relations with another state, the general public and security of the state.

6. Affairs of the company are conducted in a fraudulent manner, then it must go for winding up of a company

• Formed for unlawful purposes
• Management guilty of fraud

7. Company has failed to file the return with the registrar of the company for five consecutive years.

8. When NCLT thinks it just and equitable to wind up the company,

9. Deadlock

Where there is a deadlock between partners and it can’t be resolved, the court will pass the order for compulsory winding up.

10. Loss of Substratum

It is the substance of the object clause which is not valid. The business a company wants to do is banned or the government doesn’t give permission.

11. Oppression & Management

12. Public Interest