Winding Up of a Company

Introduction

Keeping a business has a set of challenges and obstacles. When the business does not function properly, it is better to wind up. There are several ways to shut up the private limited company in India such as vend the company, voluntary closing up, and closing the defunct company.

Winding up a company is a monotonous, but necessary, procedure. Without doing so, you would need to meet the annual requirements of the Registrar of Companies (which means pay out money on audit and compliances). The substantial reason you would want to do this, of course, is because it let go of the assets and funding made by you. The course of action for winding up of a company can be begun voluntarily by the shareholders or forced by a court. We will discuss voluntary winding up of a company and later forced closure:

Voluntary Winding Up of a Company

When Shareholders Can shut down the Company

To commence the procedure for winding up a company, the shareholders must:

a) Pass a notable resolution in a board meeting

b) In a general meeting, pass a resolution essential that a company is wound up on account of expiry of a period mentioned in the articles of association (AoA) or the meeting of a condition mentioned in the AoA requiring it to be wound up.

A course of action for Winding Up

1. The bulk of directors (or both, on occasion there are two directors) should gather a board meeting at which the chiefs should declare that the firm has no debts or that its debts can be reimbursed from the proceeds of the winding up of the company. At last, a date, time and agenda must be fixed for a general board meeting five weeks from the board meeting and issue notices for this gathering, giving a suitable explanation.

2. On the day of the general board meeting, pass an ordinary object with an ordinary majority or special resolution with a 3/4th crowd. Straight away, the directors must meet with the founders of the firm. If 2/3rds, in value terms, of creditors, admit to the winding up of the company, it may be shut down voluntarily. If not, a Tribunal will have to shut down the company.

3. Within 10 days of passing the resolution, the Registrar of Companies will need to be informed, to nominate a liquidator. The powers of the directors would delegate upon this person and he/she would be primarily in charge of accumulating all the assets of the firm and paying off its debts. The surplus would then be shared among the members.

4. 14 days from the passing of the object, notice of the resolution would need to be given in the Official Gazette and an advertisement in the district where the registered office is present.

5. Within 30 days from the passing of the resolution, a statement of accounts has to be developed, stating that there are no assets and debts except share capital and profit and loss debit balance. An affidavit and security need to be executed by all directors. If there is an unsecured loan, a waiver letter should be consent.

6. Call for the General Board Meeting, at which an exceptional resolution will be passed for disposal of accounts.

7. Within two weeks, file the accounts and unique resolution with the Registrar. If the Registrar is pleased, it will pass an order stating that the firm is wound up within 60 days. 

Closure by a Tribunal

The Companies Act, 2013 includes several new rules for the closure of a company, updating those carried in the Companies Act, 1956.

A crucial one is that the Act specifies that a company can be wound up by a Tribunal for any one or more of the following cause:

1. If the company is impotent to repay their debts/loans;

2. If the set-up (firm) has a resolution put up that it can be liquefied or wound-up through a tribunal under specific conditions;

3. If the firm has not filed returns or submitted financial statements for 5 successive years;

4. If the organization has acted against the probity and sovereignty of the country and has interfered in opposition to the relationship between neighboring or foreign countries and India;

5. If the tribunal has decided that it is only correct to wind-up the functioning of the company;

6. If the organization or its members have been entangled in any fraudulent transactions, been getting financial benefitted through illegal transactions or the company has been obtaining profits through fraudulent means;

7. On any of the above occasions, a tribunal is formed and a resolution is taken to wind-up the functioning of the company under study. Such tribunal decisions are considered final and after hearing the order, Form 11 is issued for winding-up. 

A course of action for Winding up by Tribunal

1. The tribunal will set the procedure rolling by sending a notice to an official liquidator. This person will be in charge of the firm and carry out the process of winding up of a company.

2. The court will also prepare the shutting up the order, which shall be served on all funders and contributors, asking them to step forward. The order is to be distributed even upon those who’ve filed the petition for winding up.

3. The liquidator, fixed by the central government, shall examine the books of the company, the cash in hand, balance in the bank, liabilities, creditors, loans, etc.

4. The formal liquidator must, in the next six months, furnish to the tribunal a preliminary report on the accounts, liabilities, debtors, and cash and negotiable securities present. The liquidator will also state if an inquiry into the firm is required.

5. If no inquiry is made, the liquidator must see to it that the available cash is fairly divided between all creditors until drained. The liquidator will present to the tribunal a complete account of how the money, assets, and operations were split up.

6. After inspection of the account, the tribunal pronounces the dissolution of the company.

Selling the firm is the same as voluntarily closing the company but the stakes are transferred to another individual. When the firm is involved in some unlawful activities, then it is mandatory to shut down. When the firm has to voluntarily close, they need to follow certain compulsory policies before closing down the company. A defunct firm can be closed which needs to disclose the STK-2 form in advance. 

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