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WINDING UP OF COMPANY

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What Is Winding Up of Company?

Meaning of Winding Up:

A private limited company is an artificial judicial person and requires various compliances like appointment of Auditor, regular filing of income tax return, annual return filing and more. Failing to maintain compliance for a Company could result in fines and/or disqualification of the Directors from incorporating another Company. Therefore, if a private limited company has become inactive and there are no transactions in the company, then it is best to wind up the Company.
“Winding up is a means by which the dissolution of a company is brought about and its assets are realised and applied in the payment of its debts. After satisfaction of the debts, the remaining balance, if any, is paid back to the members in proportion to the contribution made by them to the capital of the company.”

Modes of Winding Up of a Company:

A company may be wound up in any of the following two ways: 

  1. Compulsory Winding Up: Winding up a company by an order of the Tribunal is known as compulsory winding up.
  2. Voluntary Winding up: Voluntary winding up of a company can be initiated at any time by the shareholders of the company. In case there are any secured or unsecured creditors or employees on-roll, the outstanding dues must be settled. Once all the dues are settled, the bank accounts of the company must be closed.
    A private limited company needs to be closed or windup when there are no exchanges or the Directors of company are not willing to proceed its operations. A private limited company generally can be shut by both voluntary and compulsory circumstances.

What are the reasons to Winding Up of a Company?

  • No Compliance Burden: Once the company is closed, there does not exist the company as such hence the promoters or directors get free from compliance responsibilities and possible dangers of non-compliances. 
  • Faster route of Closure: Inactive or non-functioning company can be closed swiftly in about 60 to 120 days, whereas traditional methods take longer and are more cumbersome procedures. ​​​​​​
  • Avoid Fines: If the inactive or non-functioning company is not following legal compliances, it may incur heavy fines, penalties and punishments for the officers of the Company in certain cases including debarment of the Directors from starting another Company. Hence, it is better to officially wind up a company that is inactive and avoid potential fines or liabilities in the future.
  • Directors’ willingness
  • By Court order
  • Default in holding statutory gathering or consistence with statute
  • If members go underneath recommended number
  • Company gets bankrupt
  • Financial accounts are not submitted for 5 years

What documents are required for Winding Up of a Company?

  • Copy of Board Resolution
  • Special Resolution or Consent Letters of the Shareholders
  • Petition for winding up
  • Statement of Accounts certified by the Chartered Accountant
  • Affidavit by each Director
  • Indemnity Bond of each Director
  • DSC token of the Director for filing of necessary forms with ROC
  • PAN and Address proof of the Directors who are giving the affidavit

What is the Procedure Winding up of a Company?

The procedure for winding up of a company can be initiated voluntarily by the shareholders or creditors or by a Tribunal. Methods of Winding up of Company

1. WINDING UP OF A COMPANY BY TRIBUNAL

As per Companies Act 2013, a company can be wound up by a Tribunal, if:

  • The company is unable to pay its debts.
  • The company has by special resolution resolved that the company be wound up by the Tribunal.
  • The company has acted against the interest of the sovereignty and integrity, the security of the State, friendly relations with foreign states, public order, decency or morality.
  • The Tribunal has ordered the winding up of the company .
  • If the company has not filed financial statements or annual returns for the preceding five consecutive financial years.
  • If the Tribunal is of the opinion that it is just and equitable that be company should be wound up.
  • If the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purposes or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and it is proper that the company be wound up.

2. VOLUNTARY WINDING UP OF A COMPANY

The winding up of a company can also be done voluntarily by the members of the Company, if:

  • If the company passes a special resolution for winding up of the Company.
  • The company in general meeting passes a resolution requiring the company to be wound up voluntarily as a result of the expiry of the period of its duration, if any, fixed by its 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.

3. Procedure for Voluntary Winding up of a Company

The following are the steps for initiating a voluntary winding up of a Company:
Step 1: Convene a Board Meeting with two Director or by a majority of Directors with 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, time agenda for a General Meeting of the Company of this Board Meeting.
Step 2: Issue notices in writing calling for the General Meeting of the Company proposing the resolutions, with suitable explanatory statement.
Step 3: Convene the General Meeting, pass the ordinary resolution for winding up of the company by ordinary majority or special resolution by 3/4 majority. The winding up of the company shall commence from the date of passing of this resolution.
Step 4: Convene a meeting of the 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 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 and 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 publish a notice in the Official Gazette that the company is dissolved.