It is the 21st century and the country is becoming more and more business savvy. The government continues to promote the entrepreneurial skills leading the young Indians to lean more and more towards being an entrepreneur. It is thus essential to know the steps involved in closing down a business or also called as winding up a of company legally. One may be looking at winding up of a company owing to various factors such as loss, bankruptcy or closure of business etc. Here is everything you need to know about winding up of a company.
Voluntarily winding up of a company
The provisions concerning to voluntary winding up of a company was specified under Sections 304 to 325 of Companies Act, 2013. But as the Insolvency and Bankruptcy Code, 2016 got the President's assent on May 28th, 2016, all the sections related to the process of voluntarily winding up were omitted from the Companies Act, 2013.
Now the voluntary winding up shall be conducted under Insolvency and Bankruptcy Code, 2016.
If the winding up of the company is a conscious decision taken by the management voluntarily, they need to follow some crucial steps as discussed below.
A company may want to get dissolved or wind up its business on account of the following situations.
- Expiry of the period of its existence as specified in the Articles of Association.
- Any event occurs which is mentioned in the articles that if so happens, the company would wind up its business.
- Upon passing a special resolution that the company wants to wind up the business voluntarily.
Procedure of voluntarily winding up of a company
- The majority or minimum two directors need to pass a resolution stating and confirming their inquiry into company affairs where there are no debts or they will be able to fully pay the debts.
- The directors also need to fix the date, time and place for a general meeting after five weeks of passing such resolution.
- Written notices need to be issued with the details related to the general meeting and the resolution passed for winding up the company.
- The next day of passing the resolution a vote of at least two third creditors need to be obtained for winding up.
- Filing an application with the registrar of the company within 10 days of passing the resolution for the appointment of the liquidator.
- Within 30 days of the general meeting, certified copies of the resolution passed in the general meeting need to be filed.
- After winding up the work, liquidators account must be prepared and audited.
- The Final General Meeting of the company needs to be called.
- A special resolution must be passed for the disposal of books and papers after the business is winded up.
- After the final general meeting, a copy of accounts and application of dissolutions needs to be filed to the tribunal within two weeks.
- Upon satisfactory verification, the Tribunal has the authority to pass an order dissolving the company within sixty days of such application.
- The company liquidator then files the copy of the order with the Registrar.
- The Registrar upon the verification of the order passed by the tribunal publishes the notice of dissolution in the official gazette.
Winding up of a company by the Tribunal
There are also certain special conditions in which the Tribunal may step in to wind up a company as per the procedure laid down under Sections 271 to 303 of the Companies Act, 2013. They are briefly discussed as follows.
- When a company is unable to pay its debts.
- The company has passed a special resolution for the Tribunal to wind up the company.
- The company has faltered in sovereignty, the integrity of India, Foreign state relations, public orders, state security, moral grounds or decency.
- Under chapter XIX, the Tribunal has ordered for winding up of the business.
- If the company fails to file the financial records and annual returns for five years in a row.
- The tribunal is of the opinion that winding up of the company is in everybody's interest.
- The company is involved in fraudulent and unlawful practices.
Procedure of winding up of a company by Tribunal
- The tribunal is presented with the petition for winding up
- The Tribunal may dismiss it with or without cost or make an interim order at its discretion.
- The Tribunal then appoints a provisional liquidator by giving notice to the company.
- Makes an order for winding up within 90 days which may be with or without cost.
- The Tribunal may pass any other order it deems fit.
Judicial Precedents
In the case of BOC India Ltd. v. Zinc Products & Co. (P) Ltd., the court stated that where a winding up petition was filed on behalf of the Company by a person who was not authorized by the board of directors, the petition was held to be incompetent.
The easiest way to keep yourself updated on critical legal queries like these and many more is to sign up to EasyAdvocacy today.
Also, like us on Facebook and follow us on Twitter, LinkedIn and Google+ to keep up to date with all things related to legal matters.
