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PROCESS OF VOLUNTARY WINDING UP UNDER COMPANIES ACT 2013
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PROCESS OF
VOLUNTARY WINDING UP UNDER COMPANIES ACT 2013
AUTHORED BY
- AKSHITA KAUSHIK
Process of
winding up –
Winding up of any company is the last or final stage of its existence.
There may be different reasons for winding up like bankruptcy, the financial
loss of the company, mutual agreement from the stakeholders, death of the
promoters, etc. It is a process where a company ceases to exist and gets
dissolved.
Reasons for winding up-
The
potential reasons for winding up can be –
1) Closure of
business
2) Loss,
3) Bankruptcy
4) Passing
away of promoters etc
According
to the companies act 2013, there are two ways in which a company could be wound
up:
In
terms of Section 271, a winding-up proceeding may still be initiated
under the Act against a company on the following grounds:
1.
The company has, by special resolution,
resolved that the company be wound up by the Tribunal;
2.
If the company has acted against the interests
of the sovereignty or integrity of India, national security, friendly relations
with foreign States, public order, decency or morality;
3.
If on an application made by the Registrar of
Companies or such person authorised by the Central Government to do so, the
Tribunal is of the opinion that affairs of the company are being conducted in
fraudulent manner, that the company was formed for a fraudulent purpose or the
management of the company has been guilty of fraud, misfeasance or misconduct,
and the Tribunal believes it proper that the company be wound up;
4.
If the company has defaulted in filing its
annual returns with the Registrar of Companies for the preceding five
consecutive years;
5.
Or if the Tribunal is of the opinion that it is
just and equitable that the company be wound up.
Process of winding
up of company by a Tribunal–
1)
The petition of winding up of a
company is admitted before the tribunal if it is accompanied by the statement
of affairs as prescribed in the form
2)
The creditors require the
permission of the tribunal before making a petition for the winding up .The
tribunal may not admit the petition of winding up of the company unless there
is a prima facie reason for company’s liquidation
3)
The copy of the petition also
has to be filled before the registrar and then the registrar and then the
registrar has to submit his opinion before the tribunal within 60 days of
admission of the petition in tribunal under section 272
4)
The petition is filled as
prescribed in form NCLT 1 and attachments in form NCLT 2 along with the
affidavit of verification in form NCLT 6 according to rule 34
5)
The tribunal shall pass an order
of winding up under s.273 within 90 days of the presentation of the petition
and can make an interim order for the appointment of a liquidator
6)
Section 274 – if the tribunal has prima facie reason to pass an order for winding up
of the company then it can do so and further the objection can be raised within
30 days of the order
7)
The official liquidator has
right to file a declaration under s.275 within 7 days in case of conflict of
interest regarding his appointment .The same liquidator can also be removed in
case of misconduct , fraud , misfeasance or professional incompetence under
section 276
8)
The registrar under section 277
shall notify the official gazette about the company being wound up .The
official liquidator within 3 weeks shall make an application to the
tribunal for the constitution of the winding up committee which provides the
report on monthly basis
9)
After winding up , no suit /
legal proceedings can be enterntained against the company as suggested under section
279.The tribunal has jurisdiction to dispose the cases of the pending cases
of company under section 280
Voluntary
Winding Up–
Is a legal process in which a company
decides to cease its operations and wind up its affairs voluntarily.
This process is initiated by the
shareholders or members of the company when they feel that the company is
no longer viable or profitable.
The procedure for voluntary winding
up in India is governed by:-
a) the
Companies Act, 2013 (earlier dealt with under sections 304-323 of the companies
act)
b) the
Insolvency and Bankruptcy Code, 2016.
There was a shift from companies
act 2013 to Insolvency and Bankruptcy code 2016-
Some of the differences as compared
to earlier regimes are-
·
Shifting
of Powers from Official Liquidator to Insolvency Professional.
·
Jurisdictional
Authority has been shifted from High Court to National Company Law Tribunal
(NCLT)
·
Governing
sections and corresponding rules and regulations for Member’s Voluntary Winding
is now shifted to Section 59 of the Insolvency and Bankruptcy Code, 2016 (IBC)
read with Insolvency and Bankruptcy Board of India (Voluntary Liquidation
Process) Regulation, 2017.
·
Timeline
for carrying out the Voluntary Winding up process under the IBC is of 12 months,
however in the event of Liqudation process continuing for more than 12 months,
the Liquidator has to submit Annual Status Report indicating the progress of such
Liquidation.
Types of
Voluntary Winding Up-
1.
Members Voluntary Winding Up–
It takes
place only when the company is solvent i.e., they can pay its debts and
creditors approval is not required. A declaration of solvency is filed by
company in this case.
A
declaration of solvency made in members voluntary winding up has no effect
unless-
·
It is filed within 5 weeks immediately
preceding the date of passing of resolution by the company and is submitted to
registrar for registration before due date.
·
The Declaration must accompany a
statement of assets and liabilities of the company and an auditor’s report on
the financial affairs of the company for the period commencing from the date up
to which the last date such account was prepared and ending the latest date
immediately before making of declaration.
·
If a default is made in filling
declaration, directors on having no reasonable grounds for proving that the
company be liable to pay off its debts, shall be punishable with imprisonment
for a term which may extend to 6 months or fine which may extend to 5000, or
with both.
·
If the provisions are not complied in
case of Members voluntary winding up, it will result in winding up as creditors
voluntary winding up. In SHAILENDRA KANH BEHARILAL
vs SURAT DYES on 24 august,2004. The court came up to a
conclusion that provisions of the act are not complied with. Because of failure
to comply with mandatory requirements, the members voluntary winding up will
end up in winding up as a creditors voluntary winding up.
2.
Creditors Voluntary winding up-
This type of Winding up cannot
takes place without the approval of creditors. This kind of winding up comes in
picture when company has defaulted in filling declaration of solvency. A
meeting of members and creditors simultaneously must be called and conducted
after passing of resolution of voluntary liquidation in board meeting, for
taking approval on the same. The members must approve the scheme by passing
special resolution. Then the creditors meeting will be held for their approval.
The creditors will proceed with appointing a liquidator of their choice who
will take charge of the winding up process. The liquidator will take in control
of all the assets of the company and will settle the claims of the creditors.
According
to recent amendments, Section 59 of Insolvency and bankruptcy code,2016 governs
Voluntary winding up. The procedure is as follows-
·
Board meeting is conducted in which
voluntary winding up is proposed.
·
A declaration is filed by majority of
directors, that either company has no debts, or they will be able to pay debts
in full by realizing its assets. The company does not aim to defraud any person
along with the declaration, following attachments should be filed with ROC –
1. Audited
financial statements and record of business operations of the company for
previous 2 years or for period since its incorporation whichever is later.
A report of
valuation of assets of the company, prepared by a registered valuer.
·
Within 4 weeks of passing of
declaration by the directors, shareholders must approve the proposal scheme of
voluntary winding up by passing a special resolution.
·
Any debt is due to any person by the
company, creditors holding 2/3rd in value
of debt must approve such resolution. A voluntary winding up for a company
deemed to begin on the date when resolution is passed.
Commencement of
Winding Up of a Company-
·
U/s 357, winding
of a company takes place by the presentation of a petition
·
The resolution that can be passed by
the company for voluntary winding up and the commencement of winding up shall
be deemed as soon as the resolution is passed
·
If the tribunal has a reason to belive
that no fraud or mistake has been made then the procedure of voluntary winding
up is considered as valid as per the provisions
·
In any other case, the winding up of a
company is considered as soon as the presentation of petition before tribunal
Process of
Voluntary Winding Up under Companies act –
STEP 1 –
Convene a board meeting with 2/3rd
majority of directors. Pass a resolution with a declaration by the directors
that they have made an enquiry into the affairs of the company and that, having
done so, they have formed the opinion that the company has no debts or that it
will be able to pay its debts in full from the proceeds of the assets sold in
voluntary winding up of the company. Also, fix a date, place, and time agenda
for a General Meeting of the Company after five weeks of this Board Meeting.
STEP 2 –
Issue notices in writing calling for
a general meeting of the company proposing the resolutions , with suitable
explanatory statements
STEP 3-
In the general meeting , pass an
ordinary resolution of winding up by ordinary majority or special resolution by
3/4th majority .The winding up of the company shall commence from
date of passing of resolution
STEP 4 –
On the same day / next day of passing
of resolution of winding up of the company , conduct a meeting of creditors .
If two thirds in value of creditors of the company are of the opinion that it
is in the interest of all parties to wind up the company, then the company can
be wound up voluntarily. If the company cannot meet all its liabilities on
winding up, then the Company must be wound up by a Tribunal.
STEP 5-
Within 10 days of passing of
resolution for winding up of company, file a notice with the Registrar for
appointment of liquidator. Step 6: Within 14 days of passing of resolution for
winding up of company, give a notice of the resolution in the Official Gazette
and also advertise in a newspaper with circulation in the district where the
registered office is present.
STEP 6 –
Within 14 days of passing of resolution
for winding up of company, give a notice of the resolution in the Official
Gazette and also advertise in a newspaper with circulation in the district
where the registered office is present.
STEP 7-
Within 30 days of General Meeting for
winding up of company, file certified copies of the ordinary or special
resolution passed in the General Meeting for winding up of the company.
STEP 8-
Wind up affairs of the company and
prepare the liquidators account of the winding up of the company and get the
same audited.
STEP 9-
Call for final General Meeting of the
Company.
STEP 10-
Pass a special resolution for
disposal of the books and papers of the company when the affairs of the company
are completely wound up and it is about to be dissolved.
STEP 11-
Within two weeks of final General
Meeting of the Company, file a copy of the accounts and file an application to
the Tribunal for passing an order for dissolution of the company.
STEP 12-
If the Tribunal is satisfied, the
Tribunal shall pass an order dissolving the company within 60 days of receiving
the application.
STEP 13-
The company liquidator would then
file a copy of the order with the Registrar.
STEP 14-
The Registrar, on receiving the copy
of the order passed by the Tribunal then publishes a notice in the Official
Gazette that the company is dissolved.
Article Information
PROCESS OF VOLUNTARY WINDING UP UNDER COMPANIES ACT 2013
Authors: AKSHITA KAUSHIK
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/02/22
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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