Winding Up of Companies

1. Introduction
2. Winding Up & Dissolution
3. Reasons for Winding Up A Company
4. Modes of Winding Up A Company
5. Grounds for Compulsory Winding Up
6. Power of the Court after Winding Up Order
7. Powers & Duties of the Official Liquidators
8. Declaration of Solvency
9. Members’ Voluntary Winding Up
10. Creditors’ Voluntary Winding Up
11. Winding Up under Supervision of the Court
 Introduction
The winding up of a company is a process which
involves ending the life of the company and
administering its property for the benefit of its creditors
and members. In this process, the assets of the company
are collected & realised to the payment of its debt. If
after realising the creditors, company finds surplus
which is distributed among the members on the other
hand if there is any deficit, every member of the
company must contribute to the assets of the company.
After completion of these formalities prescribed by the
Companies Act, the company is dissolved and its name
is removed from the Registrar of Companies.
 Winding Up & Dissolution
Generally, the terms ‘winding up’ and ‘dissolution’ used
to mean the same thing, but according to Companies Act, these
two terms are quite different by their legal procedures. The
differences between them are as below:
Points Winding Up Dissolution
Main The first stage and involves The second stage in which a
Feature realising of assets, paying off company is finally dissolved.
liabilities & distribution of
surplus if any.
Proceedings Carried out by the liquidator Order can be issued only by the
appointed by the company/court. court.
Liquidator’s Liquidators represents the Liquidator can not represent
Duties company. company.
Debt Creditors can prove their debts. Creditors cant prove their debts.
 Reasons for Winding Up A Company

The winding up of the company may arise by any

one or more of the following reasons:
1. If the object of the company for which it was
established have been accomplished.
2. If company unable to carry out its main object.
3. If company has to dispose of its business or the
undertaking to another company or an individual.
4. If company is unable to pay its creditors in full.
 Modes of Winding Up A Company

Modes of Winding Up

By The Court Voluntary Winding Up Winding Up Under the

Compulsory Winding Up [ Sec. 484 – 531] Supervision of the Court
[ Sec. 433 – 483] [ Sec. 522 - 527]

Members’ Creditors’
Voluntary Winding Up Voluntary Winding Up
 Grounds for Compulsory Winding Up
The grounds on which a company can be
compulsorily wound up by the court are as follows.
1. If the company itself has passed a special
resolution for the winding up by the court.
2. If the statutory report is not filed with the
Registrar or company fails to hold the statutory
meeting within prescribed time.
3. If the number of members of the company falls
below 2 in case of private company and below 7 in
case of public company.
4. If company is unable to pay the debts in full.
 Grounds for Compulsory Winding Up
A company will be deemed to be unable to pay its debt
under the following conditions:
a) If it is proved to the court’s satisfaction that the company is
unable to pay its debts.
b) If the process issued on a decree order of a court in favour of a
creditors has not been satisfied.
5. If the court is of the opinion that it is just and
equitable that the company should wound up. It
should be wound up under following
circumstances:
a) When the main object of the company for which it was
established was failed.
b) When the business of the company becomes illegal.
 Petition for Winding Up (Section 439)
A petition for the winding up of a company may be
presented to the court by any of the following parties:
1. By a shareholders or contributory can present a petition
on the following grounds:
a) When No. of members of the company falls below prescribed limit.
b) When the contributory has paid the calls in arrears.
2. By the company itself by passing a special; resolution.
3. By the Registrar of the Companies.
4. By any creditor or creditors, including any contingent or
prospective creditor or creditors.
5. By the person authorised by the Central Government.
6. By the voluntary liquidator.
 Power of the Court to dispose of Petition
of Winding Up
On hearing a petition for the winding up of the
company, the court may take the following steps;
1. It may dismiss the application with or without
costs.
2. It may adjourn the hearing conditionally/
unconditionally.
3. It may dispose of the application in any way it
thinks fit.
4. It may make an interim order.
5. It may order the winding up of the company with
or without coats or make any other orders as it
thinks fit.
 Effects of The Winding Up Order

After the order has been made by the court for

winding up of the company, its effects will be as follows;
1. No suits or legal proceedings can commence
against the company without the permission of
the court.
2. If a suit or legal proceedings against the company
were pending it cannot be proceed with or
without the permission of the court.
 Effects of The Winding Up Order
3. Suits or legal proceedings by or against the
company to be stayed on passing of the order or
compulsory winding up.
4. The court will appoint the official liquidator for
the winding up of the company.
5. Powers of the board of directors are terminated
and they shall vest in the official liquidator.
6. Any debt payable at a future date becomes
immediately payable.
Power of the Court after Winding Up Order
• To give stay order on receipt of the application for
stay order either from auditor or contributor or from
the official liquidator
• Directs the contributors who hold partly paid shares
to pay the balance on such shares in case of
inadequate funds to meet the liabilities & expenses
• Can order dissolution of company when it finds that:
(i) it is difficult for the liquidator to proceed with winding up for wants
of funds.
(ii) the affairs of the company are completely wound up.
• The court has the power to exclude those creditors
who fails to prove claims within the stipulated period
for the benefit of any distribution to be made on
behalf of the company
 Powers of the Official Liquidators
Powers of the Liquidators

With Sanction of The Court Without Sanction of The Court

To defend any suit, prosecution or other

To inspect the records and returns
legal proceedings, civil or criminal in
of company on the files of the Registrar
the same on behalf of the company

To draw, accept, make and endorse

To carry on the business of the company
Bill of exchange, hundies, promissory notes
for beneficial winding up
in the name of & on behalf of company

To raise money on To take out in his official name, letters of

the security of the assets of the company administration to any deceased contributory
 Duties of the Official Liquidators
1. He should take into custody and protect the assets of
company.
2. He should submit a preliminary report to the court
on company affairs.
3. He should keep proper books of accounts relating to
the company.
4. He should keep all the funds of the company in the
“Public accounts of India” in the RBI.
5. He should obey the court’s order for the disposing
of the company’s books.
 Contribution & Proceedings of the
Committee of Inspection (Sec.465)
1. The committee shall not consist of more than 12
members representing the creditors & contributors.
2. The committee shall have power to inspect the
accounts of the liquidator at any reasonable time.
3. The committee shall meet at such time as it may
itself decide.
4. The quorum of the committee meetings shall be one
third or two whichever is higher.
5. Any member of the committee may resign by giving
written notice to the liquidator.
 Duties of Secretary in case of Compulsory
Winding Up
1. He should assist the directors in preparing the
petition for the winding up of the company.
2. After the order of winding up passed by the court,
the secretary should file with the Registrar within
30 days a certified copy of that order.
3. He must submit a statement of affairs of the
company to the liquidator within 21 days of the date
of winding up order.
4. He should furnish information regarding the
company which the liquidators may require from
time to time.
 Voluntary Winding Up
When the company wounds up itself by
surrendering and realising its assets for the payment of
debts, it can be called as voluntary winding up.
Voluntary Winding Up

By Members By Creditors

Under Section 484 of the Companies Act, a

company may wound up voluntarily:
1. When the period fixed for the duration of the
company had expired by the articles.
2. If the company passes a special resolution to
wind up the company voluntarily.
 Voluntary Winding Up

When an ordinary or special resolution has been

passed for the winding up of the company, a notice of the
same must be given within 14 days by an advertisement
in the official gazette an in the newspaper of district. A
voluntary resolution is deemed to commence from the
date of the resolution and the company ceases to carry on
its business from that date except it may be necessary for
the beneficial winding up of such business (Sec.485 &
486).
 Declaration of Solvency
Section 488 of the Companies Act provides that
when company proposed to wind up voluntarily, the
majority of the directors make a declaration of solvency
must be made:
1. Within five weeks preceding the date of passing the
resolution for winding up and delivered to Registrar
for registration before the date, along with:
• The balance sheet made out on the last mentioned
date
• A statement of the assets & liabilities as on that date
 Procedure-Members’ Voluntary Winding Up
1. Declaration of solvency must be made as per the
provision of Section 488 of Companies Act.
2. The next step is to hold a general meeting of the members
for passing the special resolution for the winding up.
3. The notice of the same must be given within 14 days by
an advertisement in the official gazette and local
newspaper.
4. The company can appoint a liquidator and fix his
remuneration.
5. On appointment of liquidator, all powers of the Board of
directors, managing directors ceases.
6. The liquidator shall exercise all powers of the board & do
all such acts necessary for winding up of the company.
 Secretary’s Duties-Members’ Voluntary
Winding Up

1. To arrange to hold board meetings for the voluntary

winding up of the company.
2. To arrange to hold an extraordinary general meeting
of the shareholders to pass a special resolution for
winding up.
3. To file with registrar, a declaration of solvency as per
the provisions of Section 488.
 Secretary’s Duties-Members’ Voluntary
Winding Up

4. To se that liquidator properly appointed at fixed

remuneration.
5. To see that every invoice, order & business letter
issued by the company before the words ‘under
liquidation’.
6. Making arrangement to provide all books, papers
and documents as well as movable & immovable
properties to the liquidator.
 Procedure-Creditors’ Voluntary Winding Up
When no declaration of solvency is made it is
considered as a case of creditors’ voluntary winding up.
Procedure for the same is as follows:
1. The company shall hold a meeting of creditors immediately
after the general meeting of the members to pass a resolution
for voluntary winding up.
2. The directors must prepare statement of affairs, list of
creditors and statement of their claim and present them to the
creditors meeting.
3. A liquidator must be nominated by members & creditors at
their respective meetings.
4. The creditor’s meeting may appoint a committee of
inspection constituting not more than 5 members.
 Secretary’s Duties-Creditors’ Voluntary
Winding Up

1. To call board meeting, to fix the date of general

meeting and to hold a creditors’ meeting.
2. To see that notice of members’ meeting & creditors’
meeting are issued.
3. To see that the notice of creditors meeting is
published in the official gazette & a local newspaper.
 Provisions Applicable to Both Voluntary
Winding Up [Sec.486, 487 & 511 to 520]

1. The voluntary winding up of the company considered

to commence when resolution is passed for the same.
2. The business of the company ceases on the
commencement of the winding up.
3. Even the company’s business is ceased the corporate
status and power of the company remains continue
until it is dissolved.
 Provisions Applicable to Both Voluntary
Winding Up [Sec.486, 487 & 511 to 520]

4. The liquidator has power to prepare contributor’s list,

to make calls, call general meeting of the company.
5. Any question arising in the winding up of the
company the court may approved by the liquidator or
any contributor or creditor.
6. All costs, charges and expenses of winding up
including remuneration of liquidator shall be payable
by company’s assets.
 Members’ Vs. Creditors’
Voluntary Winding Up
Members’ Voluntary Winding Up Creditors’ Voluntary Winding Up

1. It is possible when directors 1. It is possible by insolvent

makes declaration of solvency companies so there is no need of
before the registrar. declaration of solvency.
2. Here members appoint the 2. In this creditors and members
liquidator. may nominate the liquidator.

3. Liquidator’s remuneration is 3. It is fixed by the committee of

fixed at general meeting. inspection.

4. There will be no committee of 4. Here committee of inspection

inspection. exists.
 Winding Up under Supervision of the Court

When a resolution has passed for voluntary

winding up by company, the court may order that it
shall continue to the supervision of the court. The court
interferes in the process of winding up of the company.
The application for the court’s supervision can be made
by creditor or contributor or the company itself or the
liquidator. This is the mode of winding up which
safeguards the interest of the company, shareholders &
the creditors.
 Winding Up under Supervision of the Court

The court may take following steps after the order

is made for winding up for supervision of the court.
1. It appoints an additional liquidator or liquidators.
2. An appointed liquidator may removed for any
complaint against him.
3. It may also appoint the official liquidator to fill up
the vacancy of the liquidator caused by removal,
death or registration.
4. The court may make a call.
Voluntary Vs. Winding Up under Supervision
of the Court
Voluntary Winding Up Winding Up under Supervision of
the Court
1. The members’ & creditors' may 1. The Court may appoint an
appoint the liquidators. additional liquidators & also remove
him.
2. Transfer of shares or alteration of 2. In this, transfer or alteration is not
status of members is possible only valid so the liquidator cannot
after liquidator’s sanction.. sanction it.
3. Attachment of the company 3. In this case it require permission
property or sale of property does of court.
not require court’s permission.
4. If any member or officer makes 4. The prosecution of the fraudulent
fraud against the company, the officers and members of the
liquidator reports the matter to the company may taken by the court.
Registrar.
 Advantages

There are some advantages of winding up of a

company under Supervision of the Court, they are as
follows:
1. It automatically operates as stay of suits and other
proceedings against the company.
2. An additional liquidator may appointed by court.
3. The power of the liquidator may restricted by
court.
4. The company cannot be dissolved without the
order of the court.