Friday, August 19, 2016

A short analysis on Voluntary winding up of companies

Winding up of a company is defined as a process by which the life of a company is brought to an end and its property administered for the benefit of its members and creditors.

In words of Professor Gower, “Winding up of a company is the process whereby its life is ended and its Property is administered for the benefit of its members & creditors.

According to Halsburry’s Laws of England, “Winding up is a proceeding by means of which the dissolution of a company is brought about & in the course of which its assets are collected and realised; and applied in payment of its debts; and when these are satisfied, the remaining amount is applied for returning to its members the sums which they have contributed to the company in accordance with Articles of the Company.” Winding up is a legal process.

Provisions of Winding up

Section 425 to Section 520 of the Companies Act, 1956 (Act, 1956) read with Companies Court Rule, 1959, deals with the provisions of winding up. Since the provisions of the Companies Act, 2013 has not yet come into force, the provisions of the Companies Act, 1956 still governs the proceedings of winding up.

Modes of Winding Up

The Companies Act, 1956 provides for the following three types of winding up:
Winding up by the order of the Tribunal or Compulsory winding up; (Sec 433 to Sec 483 of the CA, 1956);
Voluntary winding up; (Sec 484 to Sec 520 of the CA, 1956) ;
Subject to the supervision of the Court.

Voluntary winding up

When a company is wound up by the members or the creditors without the intervention of Tribunal, it is called as voluntary winding up. It may take place by:-

1. By passing an Ordinary Resolution in the General Meeting if :-
the period fixed for the duration of the company by the articles has expired;
some event on the happening of which company is to be dissolved, has happened.

2. By passing a special resolution to wind up voluntarily for any reason whatsoever

WHO SHALL CARRY OUT THE WINDING UP PROCEDURE ? & WHAT SHALL BE THE PROCEDURE?
The Company shall appoint one or more liquidators, in a general meeting, who shall look after the affair of winding up procedure, and distribution of assets. [490 (1)]
The liquidator so appointed, shall be paid remuneration for his services, which shall also be fixed in general meeting [490 (2)]
The Company shall also give notice of appointment of liquidator to the registrar within ten days of appointment (493)
Once the company has appointed liquidator, the powers of Board of Directors, Managing Director, and Manager, shall cease to exist. (491)
The liquidator is generally given a free hand, to carry out the winding up procedure, in such a manner, as he thinks best in the interest of creditors, and company.
In case, the winding up procedure, takes more than one year, then liquidator will have to call a general meeting, at the end of each year, and he shall present, a complete account of the procedure, and position of liquidator (496)

WHEN AFFAIRS OF THE COMPANY ARE FULLY WOUND UP

The liquidator shall take the following steps, when affairs of the company are fully wound up : (497)
Call a general meeting of the members of the company, a lay before it, complete picture of accounts, wining up procedure and how the properties of company are disposed of.
The meeting shall be called by advertisement, specifying the time, place and object of the meeting.
The liquidator shall send to, the Registrar and official Liquidator (“OL”) copy of account, within one week of the meeting.
If from the report, official liquidator comes to the conclusion, that affairs of the company are not being carried in manner prejudicial to the interest of it’s members, or public, then the company shall be deemed to be dissolved from the date of report to the court.
However, if official liquidator comes to a finding, that affair have been carried in a manner prejudicial to interest of member or public, then court may direct the liquidator to investigate furthers.

DISTRIBUTION OF PROPERTY OF COMPANY ON VOLUNTARILY WINDING UP [BOTH MEMBERS AND CREDITORS VOLUNTARILY WINDING UP]

Once the company is fully wound up, and assets of the company sold or distributed, the proceedings collected are utilised to pay off the liabilities. The proceedings so collected shall be utilised to pay off the creditors in equal proportion. Thereafter any money or property left may be distributed among members according to their rights and interests in the company

STEPS FOR VOLUNTARY WINDING UP OF A COMPANY

The following are the steps for initiating a voluntary winding up of a company:

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