WINDING UP OF A COMPANY

MEANING OF WINDING UP• Winding up is the last stage of putting an end to

the life of the company, when all other strategies for its survival fails

• It is a process whereby the assets are sold, liabilities are paid and surplus, if any, is distributed to the shareholders (contributories)

• Liquidator is appointed – takes over the control of the company from the Board

• Winding up – company does not cease to exist except when it is dissolved

WINDING UP Vs DISSOLUTIONS. No. Basis Winding up Dissolution

1. Stage First Last

2. Authority Liquidator Court

3. Representation of the company

Liquidator Not possible

4. Creditors can prove the debts in the court

Possible Not possible

5. Effect Possibility of Revival Only termination

WHO MAY FILE A PETITION FOR WINDING UP?

• Company

• Creditors

• Members (Contributories)

• All the three jointly

• ROC

• Any person authorized by the Central Government

• Central or State Government directly

TYPES OF WINDING UPW

IND

ING

UP

COMPULSORY WINDING UP

VOLUNTARY WINDING UP

MEMBERS

CREDITORS

WINDING UP UNDER THE SUPERVISON OF THE COURT

COMPULSORY WINDING UP [Winding up by the court – (Sec.433)]• Special resolution• Default in filing statutory report or holding

statutory meeting• Failure to commence business within time• Reduction of membership – 2 or 7• Inability to pay debts (Rs.500 / 3 months)• Court order (Creditor)• Default in filing P & L A/C and B/S• Acting against sovereignty & integrity of India• Sick industrial company• Just and Equitable grounds

JUST AND EQUITABLE GROUNDS

• Loss of objectives

• Deadlock in the management

• Oppression of minority

• Fraudulent purpose

• Where a company is mere bubble

MEMBERS OF VOLUNTARY WINDING UP

1. Ordinary resolution

• Where the duration is fixed by A/A and the period is over

• Where the A/A has specified a event and the event has happened

MEMBERS OF VOLUNTARY WINDING UP[Sec. 489 – 521]

II. Special resolutions

• In all other cases

• Within 14 days of the resolution, inform the public (newspaper)

• Winding up to commence from the date of resolution

• Business can be continued only for the sake of beneficial winding up

Rules regarding Members Voluntary winding up

• Only in case of solvent company

• Declaration of solvency by the board and file with the ROC

• Appointment of liquidators (Gl. Meeting)

• Board’s power to cease on the appointment of liquidator

• Power to fill vacancy in office of the liquidator (Death, resignation, etc.)

• Duty of liquidator to call creditors meeting

• Duty to call general meeting at the end of the year

• Final meeting and the dissolution

CREDITORS VOLUNTARY WINDING UP – [Sec.500 -509]• If Declaration of Solvency is not made by the directors then

the winding up is referred as creditors voluntary winding up• Two meetings – Members and Creditors• Notice of resolution to the Roc within 10 days (Creditors

meeting)• Committee of Inspection ( 5 each )• Appointment of Liquidators (otherwise court)• Liquidator remuneration• Frequent meetings (Members & creditors)• Quorum – 1/3rd

• To inspect accounts of the liquidator• Maximum member – 12• Boards powers to cease• To call the meetings at the end of the year• Final meeting and dissolution

WINDING UP UNDER THE SUPERVISON OF THE COURT(omitted but not yet notified)

• Any contributory, creditor or the liquidator may apply to the court after passing a special resolution to that effect

• The court may make an order that voluntary winding up shall continue under its supervision

• The court will protect the minority interest, majority shareholders and creditors

• The court may also pass an order stating it as compulsory winding up

STRIKING OFF NAME OF

COMPANIES

Introduction

• A short-cut to dissolution namely striking off the name of the name of the company from the Registrar of companies by the ROC under Section 560, in case the company is a defunct company

• It is a method of dissolution with out the procedure of winding up, only statutory criterion is that the company must not in operation

• NOTE: Despite striking off, the liabilities of directors continue to remain as if the company is not dissolved

DEFUNCT COMPANY

• According to Section 560 : A company which is no longer in effect or use; not operating or functioning; not carrying on any business or is not in operation is a DEFUNCT COMPANY

PROCEDURE FOR STRIKING OF A COMPANY

1. Striking off name by ROC of his own

• Reasonable cause to believe

• Post a letter to the company

• No reply within 1 month; within 14 days shoots second letter and if no reply within a month then notice is sent to the company and a publication in the official gazette stating that the name will be struck off after the expiry of 3 months from the date of notice

• After 3 months, strike the name and publish in the official gazette the company is dissolved

CONTD . . . .

2. Striking off on company’s application

After receiving an application from the company, the ROC may proceed to strike off its name from the register and publish notice thereof in the official gazette

FAST TRACK EXIT (FTE)MODE BY MINISTRY OF CORPORATE AFFAIRS

• Innumerable no. of companies

• E-form No.61

• All pending statutory returns are required to be filed along with E-form No.61

GUIDELINES FOR FTE MODE1. Defunct company means - Nil Asset and liability and

A. Not carried on any business or activity since incorporation (or)

B. Not carrying on business for the last one year continuously

2. Identified as dormant by the Ministry of Corp. Affairs

3. Government Defunct company – ‘no objection certificate’ – from the ministry

4. Roc decision is final

FTE MODE NOT AVAILABLE FOR THE FOLLOWING COMPANIES

• Listed companies

• Delisted companies

• Section 25 companies

• Company pending enquiry by the court

• Company defaulted in repaying the deposits

• Company having secured loan outstanding

• Company having management dispute

• Filing of documents/returns stayed by the court

• Company having dues to the Government

RESTORATION OF THE COMPANY

• POSSIBLE – On the Application to the court made by the company or member or creditor within 20 years from the date of publication in the official gazette – Restoration order will be issued – Effect as if the company is not dissolved

• Notice to the ROC by the company within 14 days from the restoration order

• ROC to advertise the order in the official gazette

RIGHT OF THE AGGRIEVED PERSON WHEN THE NAME IS STRUCK OFF & EFFECT OF RESTORATION

• The court will not restore, unless benefits to the substantial interest of the members or creditors

• E-form No.21 for restoration

• Effect of restoration – A company has not been dissolved