Winding up of a Company

The term ‘winding up’ of a company may be defined as

 the proceedings by which a company is dissolved
(i.e. the life of a company is put to an end).
 Thus, the winding up is the process of putting an
end to the life of the company. And during this
process, the assets of the company are disposed of,
the debts of the company are paid off out of the
realized assets or from the contributories and if any
surplus is left, it is distributed among the members
in proportion to their shareholding in the company.
LIQUIDATOR
A person appointed to carry out the winding up of a company is
called liquidator. If the winding up is through Court, the term
used for such person is official liquidator .
The duties of liquidator include to get in and realise the property
of the company, to pay its debts, and to distribute the surplus (if
any) among the members. The official liquidator acts under the
supervision of the Court, through a recognized reporting system.

The following are the general powers of liquidator(s):-

 To institute or defend any suit, action, prosecution or other legal
proceeding, civil or criminal on behalf of the company.
 To carry on the business of the company so far as may be
necessary for the beneficial to it.
 To pay to the creditors.
 To make any compromise or arrangement with creditors.
 To compromise all calls and liabilities to calls, debts and
liabilities capable of resulting in debts.
LIQUIDATOR
 To sell the movable and immovable property and things in action of
the company by public auction or private contract, with power to
transfer to any person or to sell the same in parcels.
 To do all acts and to execute all deeds, receipts and other
documents in the name and on behalf of the company and for that
purpose to use in the company’s seal when necessary.
 To prove, rank and claim in the bankruptcy, insolvency or
sequestration of any contributory for any balance against his estate
and to receive dividends as a separate debt due from the bankrupt
or insolvent in the bankruptcy.
 To draw, accept, make and endorse any bill of exchange or
promissory note in the name and on behalf of the company.
 To raise on the security of the assets of the company any money.
Modes of winding up

The winding up of a company may be either (Section

234)-

 by the Court; or

 voluntary; or

 subject to the supervision of the Court.

Winding up of the company by the Court:
The winding up of a company by an order of the Court is
called the compulsory winding up.
Section 241 of the Companies Act 1994 envisages the
following circumstances, under which a company may be
wound up by the Court on the petition submitted to it:-

a) if the company has, by special resolution, resolved that the

company be wound up by the Court;
b) if default is made in delivering the statutory report to the
registrar or in holding the statutory meeting or any two
consecutive annual general meetings;
c) if the company does not commence its business within a year
from its incorporation, or suspends its business for a whole
year;
Winding up of the company by the Court:

d) if the number of members is reduced, in the case of private

company, below two or, below three in case of public
company and below seven in case of listed company.;
e)if the company is unable to pay its debts;
f) if the company ceases to have a member.
Winding up of the company by the Court:
g) if the Court is of opinion that it is just and equitable
that the company should be wound up; or
I. Complete deadlock in the management of the company.
II. Failure of company’s main object.
III. Recurring losses.
IV. Aggressive or oppressive policy of majority
shareholders.
V. Incorporation of company for fraudulent or illegal
purpose.
VI. Public interest.
Who is competent to file petition
for winding up in the Court?
Petition may be presented by any one of the following:

1. The company may itself by passing a special

resolution
2. Creditor or Creditors.
3. Any contributory or contributories
4. Registrar of Companies
Procedure of Mandatory Winding
up
 Court on giving order of winding up, will send notice to an
official liquidator, to take change of the company. He shall
carry out the process of winding up.
The winding up order, shall be applicable on all the
creditors and contributories, whether they have filed the
winding up petition or not.
The company shall relevant particulars, relating to, assets,
cash in hand, bank balance, liabilities, particulars of
creditors etc, to the official liquidator.
Once the official liquidator has disposed the property and
met the demands of the creditor . He shall submit a report
to the Court. The Court after examining that report shall
declare the Company to be dissolved.
 Voluntary winding up of members of the
company
A company can be wound up voluntary
a) On expiration of the period fixed for the duration of the
company by its Articles of Association or on occurrence of
event leading to dissolution of the company as provided in
the Memorandum and Articles of Association and
company has to pass a special resolution in general
meeting for its wound up voluntarily within five weeks of
filing of declaration of solvency, and
b) On passing of the special resolution that the company be
wound up voluntarily. A voluntary winding up is deemed
to commence at the time of passing of the resolution for
voluntary winding up.
The company ceases to carry out business just on
commencement of winding up. However, it can carry on its
activities and business for beneficial winding up of the
company.
PROCEDURE FOR VOLUNTARY WINDING UP
The following steps are to be taken for Member’s voluntary
winding up:
 Step 1. Where it is proposed to wind up a company
voluntarily, its directors make a declaration of solvency duly
supported by an auditors report and make a decision in their
meeting that the proposal to this effect may be submitted to
the shareholders. They, then, call a general meeting (Annual
or Extra Ordinary) of the members
 Step 2. The company, on the recommendations of directors,
decides that the company be wound up voluntarily and
passes a Special Resolution, in general meeting (Annual or
Extra Ordinary) appoints a liquidator and fixes his
remuneration. On the appointment of liquidator, the Board
of directors ceases to exist.
PROCEDURE FOR VOLUNTARY WINDING UP
 Step 3. Notice of resolution shall be notified in
official Gazette within 10 days and also published in
the newspapers simultaneously. A copy of it is to be
filed with the registrar.

 Step 4. Notice of appointment or change of

liquidator is to be given to registrar by the company
along with his consent within 10 days of the event.
PROCEDURE FOR VOLUNTARY WINDING UP
 Step 5. If liquidator feels that full claims of the
creditors cannot be met, he must call a meeting of
creditors and place before them a statement of
assets and liabilities.

 Step 6 . If the winding up continues beyond one

year, the liquidator should summon a general
meeting at the end of each year and make an
application to the Court seeking extension of time.
PROCEDURE FOR VOLUNTARY
WINDING UP
Step 7. As soon as affairs of the company are fully
wound up, the liquidator shall make a report and
account of winding up, call a final meeting of
members . In that meeting he shall show that
winding up has been conducted , the properties of
the company is disposed off and creditors demands
have been met.
The liquidator then shall submit a report of this
meeting along with all the documents of winding
up to the registrar and the company is then said to
have dissolved.
Winding up Subject to the
supervision of the Court
 Winding up subject to supervision of court, is
different from "Winding up by court."
Here the court only supervises the winding up
procedure. Resolution for winding up is passed by
members in the general meeting. It is only for some
specific reasons, that court may supervise the
winding up proceedings. The court may put up
some special terms and conditions also.
Winding up Subject to the supervision of
the Court
 However, liberty is granted to creditors, contributories or
other to apply to court for some relief.
 The court may also appoint liquidators, in addition to
already appointed, or remove any such liquidator. The court
may also appoint the official liquidator, as a liquidator to fill
up the vacancy.
 Liquidator is entitled to do all such things and acts, as he
thinks best in the interest of company. He shall enjoy the
same powers, as if the company is being wound-up
voluntarily.
 The court also may exercise powers to enforce calls made by
the liquidators, and such other powers, as if an order has
been made for winding up the company altogether by court.