Open Access Research Article
VOLUNTARY WINDING UP OF COMPANY (By-Amresh Swarnkar & Sudhanshu Mishra)
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Article Details
VOLUNTARY WINDING UP OF COMPANY
Authored By-Amresh
Swarnkar
Co-Authored By-
Sudhanshu Mishra
B.A. LLB (Hons.)
Maharashtra National Law University,
Aurangabad
Abstract
This research work is
based on the topic of ‘Voluntary Winding Up of Company’ and deals with all the
aspects of this topic in detail.
The main body of the
paper comprises of –
What is a company and
what are the various characteristics of it.
What is the process of
winding up of a company under the Companies Act, 2013, Insolvency and
Bankruptcy Code, 2016.
What is the concept of
voluntary winding up of company.
What is the process of
the voluntary winding up of a company.
Case laws related to the
winding up of a company.
This paper aims to make
its readers understand about the whole concept of voluntary winding up of a
company along with all the details related to this aspect.
The readers of this paper
will also come to know along with it the concept of a company, its
characteristics, etc.
The paper gives an
overall detailed view of this concept closely as per the Companies Act, 2013
and Insolvency and Bankruptcy Code of 2016.
Table Of Contents
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Serial No.
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Name of Topic
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1.
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Introduction
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2.
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Voluntary Winding Up of Company
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3.
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The Process of Voluntary Liquidation
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4.
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Role of a liquidator in liquidation of a
company
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5.
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Claims by Stakeholders
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6.
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Distribution of Proceeds and Unclaimed
Proceeds of Liquidation
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7.
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Completion of Liquidation
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8.
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Case laws on Voluntary Winding Up of a
Company
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Research Methodology
This paper is in the form
of a doctrinal study i.e. done on the basis of various books and internet. The
research is descriptive in nature with an analytical approach on the topic. The
sources used primarily are secondary sources such as- the books and internet.
Statement Of Problem
The
paper aims to deal with the discussion on the topic ‘Voluntary Winding up of a
company’ under the ambit of Companies Act, 2013 and Insolvency and Bankruptcy
Code, 2016 and what are the various elements related to this topic.
Research Questions
1. What is the concept of a Company ?
2. What is the concept of Liquidation of a Company?
3. What is voluntary winding up of a company?
4. What is the role of a liquidator in voluntary
winding up of a company?
Literature Review
Regarding this topic various works
have already been done in the past by many of the authors since this is quite a
famous topic in the realm of company law and is also a well-researched one and
in this research work as well this topic has been dealt in detail covering its
various aspects with the aim to contribute to this well-researched topic.
Voluntary
Winding Up Of Company
Introduction
Concept of Company:
In layman’s language a company can be
said to be an association of persons who are like-minded and have gathered to
carry on business for gaining profits.
In the legal sense a company is an
association incorporated under the corporate laws of a particular country and
is registered under the same.
In the terms of Indian context the
Companies Act of 2013 lays down the foundation and framework of laws to
establish a company and also governs the various affairs and functioning of a
company in India.
The definition of a ‘Company’ under
the Companies Act, 2013 is-
“Company means a company incorporated
under this Act or under any previous company law.”
(Previous company law here means the
Companies Act of 1956)
In common law, a company is a ‘legal
person’ or ‘legal entity’ which has a separate form and is capable of surviving
even after the lives of its members.
Some Major
Characteristics Of A Company Are-
1. Corporate personality: A company incorporated under the
Companies Act, 2013 is vested with a corporate personality i.e. it is an
artificial person and has a separate legal entity i.e. it can sue as well as
can be sued.
Due to this characteristic a company bears its own name, acts
under its own name, has a seal of its own and the company’s assets are separate
and distinct from those of its members.
A company is a different ‘legal person’ and is distinct from
those of its members, hence it is capable of:
·
Owning
a property.
·
Borrowing
money.
·
Incurring
debts on its own name.
·
Having
a separate bank account on its own name.
·
Entering
into contracts on its own name.
·
Sue
or being sued in its own name in the same manner as an individual.
2. Company has nationality and
residence: Though it
has been established that a company cannot be a citizen, yet it has
nationality, domicile and residence.
3. Limited Liability: The privilege of limited liability
for the debts of the business is one of the major advantages of doing a
business under the corporate form of organization.
A company being a separate person, is
an owner of its own assets and is bound by its own liabilities i.e. the
liability of a member in the manner of a shareholder in a company extends only
to the scope of his/her contribution in the capital of that company i.e. up to
the nominal value of the shares of the company which are held by him/her.
Therefore, the private assets of the investors and owners is not at a risk if
the company incurs huge losses.
4. Capacity to sue and be sued: A company being a body corporate
having a separate legal entity can sue and be sued in its own name.
5. Termination of Existence of a
company: A company
is an artificial juridical person hence it can never die a natural death
whereas it is created by law, carries on its day-
to-day affairs as per the law throughout its existence and ultimately
will also be effaced by law only. This term pertaining to the termination of
existence of a company is known as ‘winding up of a company.’
Voluntary Winding
Up Of Company:
A voluntary liquidation or winding up
of a company is a self-imposed winding-up and dissolution of a company which is
approved by the shareholders of such a company.
Such a decision related to a
corporate happens once the leadership of such corporate decides that this
specific company has no substantial reason to continue its operations.
The aim of such a liquidation is to
terminate the company’s operations, dismantle the corporate structure in an
orderly fashion, end its financial affairs along with paying back the company’s
creditors according to their priorities.
Understanding
The Concept Of Voluntary Liquidations
The company’s voluntary liquidation
resolution is started by that company’s board of directors. A voluntary
liquidation is enacted when a resolution to cease its operations is approved by
the shareholders of that company.
A voluntary liquidations is in
contrast to an involuntary liquidation. A shareholder’s vote allows the company
to liquidate the assets of that company in order to generate funds to pay the
debts. Voluntary liquidation as such can happen because of poor operating
conditions i.e. when a company is operating at a loss since a reasonable time.
A voluntary liquidation may also
happen in a case when a company which is liquidating was only meant to exist
for a specific period of time or for a particular purpose which has been
fulfilled now so the company is now being liquidated by its board.
Another scenario can be where a key
member of the company has left the organization and the shareholders have
decided not to continue operations thereon.
The Process
Of Voluntary Liquidation:
A voluntary liquidation can be done
by the members of the company when
*A special resolution is passed by
the company for winding up.
*A company passes a resolution in its
general meeting which requires the voluntary winding up of that company as a
result of the expiry of that company’s duration or on the occurrence of a
particular event in relation to which the Articles of Association of that
company provide that the company should be dissolved in such a case.
The
Following Steps Are Involved In The Voluntary Liquidation Of A Company
1. A company which intends to liquidate
itself voluntarily may initiate the voluntary liquidation proceedings under the
provisions of Insolvency and Bankruptcy Code, 2016 namely- Section 59 of
Chapter V of Part II of the code.
2. The company which is voluntarily
liquidating itself should not have committed any default.
3. A declaration along with an affidavit
from the majority of the directors of that company is required stating that a
complete inquiry has been made by them in the various affairs of the said
corporate that the corporate will clearly be able to pay its various debts
completely and the said liquidation is not to defraud anyone.
(The declaration which is made shall be accompanied with the
audited financial statements of the said corporate for the two previous years
along with a valuation report of the various assets of the said corporate, if
any prepared by the registered valuer).
4. A special resolution for the
voluntary liquidation of the corporate and appointment of an insolvency
professional as the liquidator is to be passed by the company within four weeks
of giving the declaration mentioned above.
5. Where a company owes any debt to any
person, such resolution should be approved by its creditors being two-third in
value within seven days of passing such a resolution.
6. The passed resolution should be
notified to the Registrar of Companies and also to the Insolvency and
Bankruptcy Board within seven days. The voluntary liquidation process is deemed
to be commenced from the date of passing such resolution.
7. In case where the affairs of the
company have been completely wound up and its assets are also completely
liquidated already, the liquidator shall make an application to the
Adjudicating Authority for the dissolution and the Adjudicating Authority shall
pass an order for the dissolution of the said corporate.
The term ‘Adjudicating Authority’ defined under Section 5 of
Chapter I of Part II of the Code shall mean the National Company Law Tribunal.
8. The order of the National Company Law
Tribunal shall be forwarded to the authority with which the company is
registered within 14 days from the date of the said order.
In the liquidation of a company a
liquidator plays a key role so now we will discuss some important points with
regards to a liquidator:
Who Should
Be Appointed As A Liquidator?
An insolvency professional will play
the key role of being a liquidator and he shall be eligible to do so if he
along with every partner or director of the insolvency professional entity of
which he himself is a partner or director is independent of the company which
is winding up.
An ‘insolvency professional’ means a
person who is enrolled under Section 206 as a member with an insolvency
professional agency and also is registered with the Board as an insolvency
professional under Section 207.
A person will be considered
independent of the company which is winding up, if he:
*is eligible to be appointed as an
independent director in the company.
*is not a related party of the
company.
*has not been an employee or
proprietor or partner of an auditing firm/ company secretaries firm/ cost
auditors firm of the company or of a legal or a consulting firm having
transactions with the company contributing 10 percent or more of the gross
turnover of such firm at any point of time in the preceding three years.
*An insolvency professional will not
be appointed as a liquidator if he is under a restraint order of the Board or
is representing any other stakeholder in the same liquidation.
Powers And
Functions Of The Liquidator:
The liquidator has to verify the claims of all the creditors.
*The liquidator has to take into
custody or control all the assets, property, effects and actionable claims of
the company and has to take such measures to protect and preserve the assets
and properties of the company.
*The liquidator can obtain any
professional assistance from any person or can appoint any professional, in
discharging his duties, obligations and responsibilities.
*The liquidator has to invite and
settle claims of creditors and claimants and distribute the proceeds in
accordance with the provisions of the Code.
*The liquidator has to take such
actions, steps or to sign, execute and verify any paper, deed, application,
affidavit or instrument for liquidation, distribution of assets and in
discharge of his duties as a liquidator.
*The liquidator has to make an
application before the National Company Law Tribunal for such orders for
liquidation of the company and also has to report the progress of the
liquidation process.
*To perform any other functions which
may be specified by the Board.
Reporting
By The Liquidator
A Preliminary Report is to be
prepared and submitted by the liquidator along with the Annual Status Report,
Minutes of consultations with the stakeholders and a Final Report in the manner
which is specified under the Insolvency and Bankruptcy Board of India (Voluntary
Liquidation Process) Regulations, 2017.
*Preliminary Report-
It should be submitted to the
corporate entity within 45 days from the date of commencement of the date of
liquidation, this should give detailing of the capital structure of the corporate
entity and the estimates of its assets and liabilities as on the date of the
commencement of the liquidation.
*Final Report-
It is to be submitted to the National
Company Law Tribunal along with the application under Section 59(7) and it is
also to be sent to the Registrar and to the Board on the completion of the
process of the liquidation.
The
Final Report shall consist of:
a. audited accounts of the liquidation.
b. a statement which demonstrates that
the assets of the corporate entity have been disposed of, the debt of the
corporate have been discharged and there is no litigation which is pending
against that corporate entity.
c. a sale statement relating to all
assets comprising the realized value, the cost of the realization, mode and
manner of the sale, the person to whom such sale is made, and other relevant
details of the sale if any.
Public
Announcement By The Liquidator
The liquidator shall make a public
announcement in the Form A of Schedule I of the aforesaid Regulations, and such
announcement should be made within five days from the date of his appointment
in an English and a regional language newspaper and also on the website of the
corporate entity, if any.
Such announcement shall call upon the
stakeholders in order to submit their claims as on the date of commencement of
the liquidation and also provide the last date for the submission of the claims
which shall be thirty days from the date of commencement of the liquidation.
Claims By
The Stakeholders:
Claims by Operational Creditors-
A person who is claiming to be an
operational creditor of the corporate entity shall submit the proof of such
claim to the liquidator in Form B of Schedule I.
Claims by Financial Creditors-
A person who is claiming to be a
financial creditor of the corporate entity shall submit the proof of such claim
to the liquidator in Form C of Schedule I.
Claims by Workmen and Employees-
A person who is claiming to be a
workman or an employee of the corporate entity shall submit the proof of such
claim to the liquidator in Form D (for individual claimant) / Form E (for a
group of the claimants) of Schedule I.
Claims by other Stakeholders-
A person who is claiming to be a
stakeholder other than the persons mentioned above, of the corporate entity
shall submit the proof of their claim to the liquidator in Form F of
Schedule I.
The liquidator shall verify the
claims which have been submitted withing 30 days from the date for receipt of
the claims and may either reject or admit the claims, in whole or in part as
the case may be.
The
liquidator shall prepare the list of the various stakeholders on the basis of
the claims submitted within 45 days from the last date for receipt of the
claims.
Distribution
Of The Proceeds And Unclaimed Proceeds Of Liquidation:
*The liquidator shall open a account
in a scheduled bank in the name of the corporate entity followed by the words ‘in
voluntary liquidation’ for the receipts and payments of all the money
involved.
*The liquidator shall distribute the
proceeds from the realization within six months from the receipt of the
amount to the other stakeholders and the claimants.
*If there are any unclaimed proceeds
of the liquidation or undistributed assets, the liquidator shall make an
application before the National Company Law Tribunal for passing an order to
pay such proceeds into the Companies Liquidation Account in the Public Account
of India before the order of the dissolution is passed under Section 59(8) and
necessary intimation of such a payment is to be given to the Registrar.
Completion
Of Liquidation:
The liquidation shall be completed by
the liquidator within 12 months from the date of commencement of the
liquidation. If the process of liquidation continues for more than 12 months, a
meeting of the contributories is to be held by the liquidator within 15 days
from the end of 12 months from the date of commencement of the liquidation and
at the end of every succeeding 12 months till the dissolution of the corporate
entity.
The Annual Status Report is to be
presented by the liquidator which indicates the progress in the liquidation
including the settlement of the list of stakeholders, details of the assets
which are remaining to be sold and realized, distribution which has been made
to the stakeholders, etc.
Preservation of the Records of the
liquidation:
A physical or an electronic copy of
the reports, registers and books of account for at least 8 years after the
dissolution of the corporate entity shall be preserved by the liquidator with
himself or with an information utility.
Case laws on voluntary winding up of
a company-
1. Neptune Assurance Co. Ltd. v. Union
of India[1] :
It was held in this case
that the expression “voluntary winding up” in the Companies Act means a winding
up by a special resolution of a company to that effect.
Similarly, the expression
“winding up by the court” means winding up by an order of the court in
accordance with Section 433 of the Companies Act.
2. Pankaj Mehra v. State of Maharashtra[2] :
It was laid down in this case that once a petition for
winding up is presented it is not a necessary concomitant that the winding up
would follow. This position was made clear in Section 440(2) which says that
“the court shall not make a winding up order on a petition presented to it
under Sub-section (1), unless it is satisfied that the voluntary winding up or
winding up subject to the supervision of the court cannot be continued with due
regard to the interests of the creditors or contributories or both.” So a
judicial exercise is called for to reach the satisfaction of the court that winding
up has to be continued with due regard to the interest of the creditors or the
contributors. Section 443 of the Companies Act is important in this context.
3. National Textile Workers’ Union v. PR
Ramakrishnan[3]
:
The decision was given by the Supreme Court in order to avoid
undue hardship on the part of the company, had held that the trade union could
not present a petition for winding up. It also can’t represent workers for this
purpose, as they have an alternative remedy under the Industrial Disputes Act,
1947.
4. Pierce Leslie and Co. Ltd. v. Violet
Ouchterlony[4]
:
The Honorable Supreme Court in this case held that winding up
precedes the dissolution. There ‘is no statutory provision vesting the
properties of a dissolved company in a trustee or having the effect of
abrogating the law of escheat. The shareholders or creditors of a dissolved
company cannot be regarded as its heirs and successors. On dissolution of a
company, its properties, if any vest in the government.
5. IBA Health v. Info- Drive Systems[5] :
It was held that the Company Court is not required in a
winding-up proceeding to examine complex issues of law and fact, or resolve
serious dispute between parties. The Supreme Court held that a Company Court cannot
proceed with a winding-up petition if the respondent raises a ‘substantial’ or
‘bona-fide’ dispute as to the existence of the debt.
6. Amalgamated Commercial Traders Pvt.
Ltd. v. A.C.K. Krishnaswami[6] :
It was held in this case that ‘it is well-settled that a
winding up petition is not a legitimate means of seeking to enforce payment of
the debt which is bona fide disputed by the company.
A petition presented
ostensibly for a winding up order but really to exercise pressure will be
dismissed, and under circumstances may be stigmatized as a scandalous abuse of
the Court process.’
Conclusion
The research done in this paper
comprises of a well-detailed study on the topic of – Voluntary winding up of a
Company and in this paper this concept has been dealt with in detail along with
the related concepts related to it.
The paper focuses on telling its
readers that what is the concept of a company, what is liquidation of a
company, what is the voluntary winding up of a company, what is the role of a liquidator
in this winding up process and this paper also covers the various case laws
related to the research topic.
In this paper after a well detailed
research we can conclude to say that the process of voluntary winding up of a
company is safe to go for and can be chosen by the promoters/ directors of a
company by following the procedure as mentioned in detail in this paper when
they feel like that the main purpose of the company has been fulfilled or there
is no use of the company to function any more or the owners wish to divest the
money and assets of the company in some other business or interest.
REFERENCES
1. Company Law by Avtar Singh
2. Company Law and Practice by A K
Majumdar
3. Company Law by Brenda Hannigan
Article Information
VOLUNTARY WINDING UP OF COMPANY (By-Amresh Swarnkar & Sudhanshu Mishra)
Authors: Amresh Swarnkar, Sudhanshu Mishra
- Journal IJLRA
- ISSN 2582-6433
- Published 2022/09/21
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
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