Unit-4 Winding Up of a Company

Winding up is a process by means of which the affairs of a company are wound up in a manner to
dissolve the company and put an end to the life of a Company. In the process of winding up, the
company’s assets and properties are administered for the benefit of the members and creditors of
the Company. The administrator, called liquidator, realises its assets, pays its debts and finally
distributes the surplus, if any, among the members/creditors, in accordance with their right as
provided in the article of the Company. In other words, winding up is a legal process to dissolve the
business of a company. The term “Winding Up” and “liquidation” are used interchangeably.
However, there are various means of winding up, i.e., by way of- members’ voluntary winding up,
creditors’ winding up, winding up by the tribunal etc.

Types of Company winding up:

A company can be wound up in two different ways-

Voluntary winding up of a Company (Sec 484 to Sec 520)

Compulsory winding up of a company (Sec 433 to Sec 483)

1. Voluntary Winding up of a Company

The Winding up of a Company can be done voluntarily by the members of the Company, if :

The company passes a special resolution for winding up the Company.

The Company in general meeting passes a resolution which requires a company to wind up
voluntarily as a result of the expiry of the period of its duration, any as per the Articles of Association
or on the occurrence of any event in respect of which the articles of association provide that the
company should be dissolved.

Procedure for Voluntary winding up of a Company

Convene a board meeting with the Directors in which a resolution should be passed with a
declaration by the directors that they have made an enquiry in the affairs of the Company and the
company no debts or the Company will pay from the precedes of the assets sold in the voluntary
wind up of the company.

Notices should be issued in writing to call for the general meeting of the Company proposing the
resolutions, with a suitable explanatory statement.

Pass the ordinary resolution for winding up of the Company in the generally meeting by ordinary
majority or special resolution by 3/4 majority. The Winding up of the Company shall commence
from the date of passing the resolution.

A meeting of the creditors should be conducted on the same day or the next day of passing the
resolution regarding winding up. If the 2/3rd value of the creditors are of the opinion that it is in
interest of all parties to windup the Company, the the Company can wound up voluntarily.

Within 10 days of passing the resolution for company winding up , a notice for appointment of
liquidator must be filed with the registrar.

Within 30 days of the general meeting for the winding up the certified copies of the ordinary or
special resolution passed in the general meeting for the winding up of the Company.
The affairs of the company need to be wind up and prepare the liquidators account of the Winding
up account and to get it audited.

Call for the final General meeting of the Company.

A special resolution should be passed for the disposal of the books and the papers of the company
when the affairs of the company are completely wound up and it is about to be dissolved.

Within two weeks of the general meeting of the Company, file a copy of the accounts and file and
the application to the tribunal for passing an order for the dissolution of the company.

The tribunal shall pass an order dissolving the company within 60 days of receiving the
application.

The company liquidator is required to file a copy of the order with the registrar.

The registrar will then on receiving the copy of the order passed by the Tribunal then publish a
notice in the official gazette that the Company is dissolved.

2. Compulsory winding up of a Private Limited Company

Tribunal is responsible for this kind of wind up of Companies.

Here are the reasons for the same:

Unpaid debts of a Company

When a special resolution is passed fort winding up

An unlawful act by a company or the management of the Company

If the company is involved in fraudulent acts or misconduct

If the annual returns or financial statements are not filed for five consecutive years with the ROC

The Tribunal is of the view that the company should windup.

Procedure for compulsory winding up of a Company

Is to File a petition to the tribunal along with the statement of the affairs of the Company that is to
wind up.

The tribunal will either accept or reject the petition if the person other than company files a
petition then the tribunal may ask the company to file objection. it goes along with the statement
of affairs within 30 days.
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Liquidator needs to be appointed by the tribunal for the winding up process. The liquidator carries
out the function of assisting and monitoring the liquidation proceedings.

Liquidator is supposed to prepare a draft report for approval. when the draft report gets approved
he shall submit the final report to the tribunal for passing the winding up order.

It is necessary of the liquidator to forward a copy to the ROC within 30 days,If he fails to do so
then he will get a penalty.

If the ROC finds the draft satisfactory he then approves the winding up of the Company and the
name of the Company is striked from the register of Companies.

ROC sends notice for Publication in the official gazette of India

Liquidator under Companies Act, 2013

A liquidator is an officer who is particularly appointed to wind up the affairs of a company when it
decides to end its operations, typically when it goes bankrupt. He manages the entire liquidation
process. Generally, a liquidator is appointed by the court or by the shareholders of a company or by
unsecured creditors. The core variances between a liquidator and an official receiver are not their
roles but the insolvency process which they oversee and manage. A liquidator is appointed in a MVL
(members voluntarily winding up )and CVL (creditors voluntarily winding up) by the directors, which
enables the directors to hold a degree of control over the process. An official receiver is appointed
by the court as a liquidator when a winding-up order has been passed as a consequence of a
creditor(s) forcing the company into compulsory liquidation.

Company liquidator as defined by the Companies Act, 2013

1) means a person appointed by the Tribunal as the Company Liquidator in accordance with
the provisions of section 275 for the winding up of a company under this Act.
2) A liquidator is a person with the legal authority to act on behalf of a company in various
capacities; however, he is only an additional person helping the company in the winding up
process.
3) As the liquidator is appointed, he/she takes over the control of the company‘s assets. He
sells the assets of the company to fetch maximum price and uses fund realised from such
sale is used to pay the company‘s debts and lastly if anything remains he distributes it
 among the members in agreement with their rights and share.

Appointment of Liquidator

Section 275 of the Companies Act, 2013 is concerned with the appointment of liquidators to manage
the affairs of the company on winding up or to manage its affairs in the course of hearing the
petition for winding up. This Section adopts the shift in policy in the amended Sections 448 and 450
of the 1956 Act in providing for the appointment of independent professionals as liquidators of the
company.

The Tribunal will appoint the Official Liquidator or liquidator from a panel maintained by the Central
Government for this purpose. The designation accorded to the liquidator appointed is "Company
Liquidator".

A liquidator appointed pending winding up orders passed is a "Provisional Liquidator". A provisional

Powers and Duties of Liquidator

Section 290 of the 2013 Act provides for the powers and duties of company liquidator in winding up
by the tribunal. The company liquidator can exercise certain powers subject to the overall control of
the tribunal. The tribunal may require the company liquidator to perform any other duty. The
powers of the company liquidator as specified in Section 290(1) of the Act. Following are some of the
powers of a liquidator –

Powers:

1. "to carry on the business of the company so far as may be necessary for the beneficial winding up
of the company";

2. "to sell the immovable and movable property and actionable claims of the company by public
auction or private contract, with power to transfer such property to any person or body corporate,
or to sell the same in parcels";

3. "to invite and settle claim of creditors, employees or any other claimant and distribute sale
proceeds in accordance with priorities established under this Act";
4. "to inspect the records and returns of the company on the files of the Registrar or any other
authority";

5. "to draw, accept, make and endorse any negotiable instruments including cheque, bill of
exchange, hundi or promissory note in the name and on behalf of the company, with the same effect
with respect to the liability of the company as if such instruments had been drawn, accepted, made
or endorsed by or on behalf of the company in the course of its business";

6. "to take out, in his official name, letters of administration to any deceased contributory, and to do
in his official name any other act necessary for obtaining payment of any money due from a
contributory or his estate which cannot be conveniently done in the name of the company, and in all
such cases, the money due shall, for the purpose of enabling the Company Liquidator to take out the
letters of administration or recover the money, be deemed to be due to the Company Liquidator
himself";

7. "to take all such actions, steps, or to sign, execute and verify any paper, deed, document,
application, petition, affidavit, bond or instrument as may be necessary,— (i) for winding up of the
company;

a. for distribution of assets;

b. in discharge of his duties and obligations and functions as Company Liquidator";

When an individual is appointed as the liquidator of a company, he is expected to perform certain

Following are the duties of a liquidator:

1. The first duty which a liquidator has to fulfil is that of providing notice of his appointment. It is
clearly stated under Section 178 (b) of the Income tax act that an individual who is appointed as a
liquidator must within thirty days of him becoming such liquidator, give notice to the Assessing
Officer sanctioned to evaluate the revenue of the company of his appointment.

2. It is the duty of the liquidator to act equitably and impartially the whole winding-up procedure in
accordance with the provisions of law and the directions of the tribunal. It is also his duty to make
himself thoroughly acquainted with the state of affairs of the company, and also about the technical
hurdles that the company is facing.

3. The liquidator must bring into his custody and control the property of the company.

4. He must submit a preliminary report to the tribunal within sixty days from the winding up order.
5. He must within 30 days from date of direction from the tribunal shall call a meeting of the creditor
and other contributories in order to determine the persons who are to be made the members of the
advisory committee, if such committee is to be appointed. And, he must chair this committee.

6. He must keep all sums received by him on behalf of the company into some scheduled bank, or in
accordance to the directions of the tribunal.

7. He must maintain proper books in the prescribed manner in which he must make entries or
minutes to be made of the proceedings of meetings and of other such matters as may be prescribed.
The books may be inspected by any creditor or contributory or their agents subject to control of the
tribunal.

8. A liquidator owes a duty to act with care and efficiency. He has a duty to exercise his particular
professional skills to complete the winding up process and he shall incur liability if he fails to show
the required degree of care and skill which, by accepting the office. Therefore, a high standard of
care and diligence is required of a liquidator.

9. As the liquidator is acquainted with all the state of affairs of the company and has all the records
and accounts of the company, it is his duty to maintain all these records and accounts safely and not
disclose this information to any person not authorized to access them or has legitimate reason to
gain access to them.

Removal and Resignation of Liquidator

The Companies Act, 2013, under Section 276 provides for the grounds for Removal and
Replacement of Liquidator. Section 276 of Companies Act, 2013, states the following grounds:

1.Misconduct

2.Fraud and Misfeasance

3.Failure in exercising Due Care and Diligence in performing his Powers and Duties

4.Professional Incompetence

5.Inability to act as Company Liquidator or Provisional Liquidator

6.Lack of Independence Conflict of Interest during his/her term of Appointment which would justify
Removal

Different methods/types of removal:

1.Removal by Resignation

Under the Companies Act, 2013, the Company Liquidator can be removed if he/she resigns from
the position. To resign the Company Liquidator can summon up a meeting and submit his/her
resignation in the meeting. The Tribunal can transfer the assigned work of the earlier Liquidator to
another Company liquidator.

2.Removal by Creditors

The creditors when thinks that the Company liquidator is guilty of any of the grounds mentioned
in Section 276 of the Companies Act, 2013, can go for the Removal and Replacement of
Liquidator. In case of Removal of Company Liquidator, the Tribunal can assign the work of earlier
Liquidator to another Company Liquidator.

3.Removal by Death

The Death of Company Liquidator will vacate the office of the Liquidator in the Company. The
Tribunal in case of death of Company Liquidator can transfer the work assigned to him/her to
another Company Liquidator.

4.Removal by Central Government

According to Section 275 of Companies Act, 2013, the Central Government can appoint a Company
Liquidator. The Central Government on account of any of grounds mentioned in Section 276 of the
Companies Act, 2013, can remove the Company Liquidator. The Central Government before the
Removal of Liquidator should provide him/her a reasonable opportunity of being heard.

There are some key considerations which should be looked during Removal and Replacement of
Liquidator:

a.There should be reasonable cause shown for the Removal and Replacement of Liquidator.

b.The reasons given should be recorded in writing for the Removal and Replacement of Liquidator.

c.If the Tribunal thinks the Company Liquidator has caused loss to the Company by conducting fraud
or misfeasance or failure to exercise due care and diligence while performing his powers and duties,
the Tribunal can recover the loss or damages from the Company Liquidator.

d.The Tribunal can pass orders as it may think fit for the recovery of loss done by the Company
Liquidator.

e.The Tribunal should give a reasonable opportunity of being heard to the Company Liquidator.

f.The Removal and Replacement of Liquidator should be done with properly written and recorded
reasons for such Removal and Replacement of Liquidator.