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WINDING-UP OF COMPANY: AN APPRAISAL

 

WINDING-UP OF COMPANY: AN APPRAISAL

Hargunn Kaur Makhija*

 Introduction

The company can wound up either under the Companies Act, 2013, or under Insolvency Bankruptcy Code, 2016. The term winding up of the company means that the life of a company has come to an end and the only purpose left is selling of the stocks, paying the creditor, and distributing remaining assets to the shareholders or the partners of the company. The procedure of winding up the company is legal. According to Halsburry’s Laws of England, “Winding up of a company is the process of dissolution of the company, collecting and realizing its assets, paying off its obligation and then returning to its members the sum they paid to the company by company’s Article of Association with the remaining funds.” Till the process of winding up is not completed a liquidator is assigned by the company to release the assets and liabilities of the company. If the winding-up is taking place it doesn’t necessarily mean that the company is insolvent, a company can wound up with members approving in a general meeting. The winding-up of can be done by shareholders, creditors, or tribunal.

 Procedure under Companies Act, 2013

There are two ways in which the winding-up of a company takes place:

       I.            Compulsory winding-up: Section 270 of Companies Act, 2013 deals with compulsory winding up of the company. It means that the court or tribunal will order the company to wind up if the company becomes insolvent or bankrupt. If in any case, the company suffers the liquidation situation then the court will appoint a liquidator to complete the same process.

 

    II.      Voluntary winding up: The voluntary winding up is further divided into two parts-

·         Members Voluntary Winding up: This winding up takes place when the company is solvent means when the company can pay its debts. Shareholders must show their solvency in the board meeting. The declaration must satisfy the directors that the company has no loans and will pay the debts within the 3 years after winding up. Then after the satisfaction of the directors, a general meeting is set where a liquidator will be appointed and an amount is fixed. Then liquidator must hold a general meeting after rectifying everything and then lay down a procedure for winding up the company and to even lay the accounts.

·         Creditors Voluntary Winding Up This type of winding up takes place when the company becomes insolvent meaning the company is unable to pay its debts. In this, the company must hold a meeting of creditors and the board to show the affairs of the company with a detailed list of the creditors including the estimated claims. Then afterward the company and creditors appoint a liquidator if in case anyone party does not agree then the creditors appoint the liquidator. The liquidator then after evaluating everything calls a meeting and lays down the procedure for winding up the company.

Procedure under Insolvency and Bankruptcy Code, 2016

The procedure of winding up of the company under the Insolvency and Bankruptcy Code, 2016 is dealt with under Section 59 which talks about Voluntary Liquidation. Voluntary Liquidation means when a company decides to wind up itself after receiving consent from shareholders. It usually takes place when the company becomes insolvent or is unable to pay its debts. However, the same was dealt with under the Companies Act, 1956 as well as 2013 but it was removed from the Companies Act and was added under Section 59 of the Insolvency and Bankruptcy Code, 2016

Procedure to be followed:

       I.            To avoid misleading any person or institution, a document called Submission of Declaration to Company Registrar must be filed, saying that the firm will or should be able to pay debts and that it has commenced the voluntary liquidation procedure.

    II.            During 4 weeks of the completion of the statement, a Special Resolution must be enacted to authorize the voluntary liquidation operation and an Insolvency Professional must be assigned as liquidator ("Approval"). If the corporate entity has any debtors, the permission of two-thirds of the creditors is also essential.

 III.            Within 5 days of receiving the Approval, a Public Notice must be published in newspapers and on the Corporate Person's website (if any), requesting all stakeholders to submit claims or objections.

 IV.            The award of Approval must be notified to the Board of Directors and the Company’s Registrar within seven days after the Approval.

    V.            Preliminary results of authorized capital, asset, and liability approximations, and the planned plan of action, among other things, shall be compiled into a Preliminary Report and given to the corporate person within 45 days after the stated Approval.

 VI.            Verification of such claims must be completed within 30 days of the last day of receipt, and the list of stakeholders involved must be completed within 45 days of the last day of receipt.

VII.            A bank balance in any of the scheduled banks in the name of the above-mentioned Corporate Entity, followed by the phrase "involuntary liquidation," to receive any money payable to the corporate entity.

VIII.            The method for selling all of the corporate person's assets and recovering monies owed to the corporate person, as well as realizing uncalled or unpaid capital or unpaid contributions, must be followed.

 IX.            Within six months, the monies acquired from the realization of the Capitals must be distributed to all stakeholde involved.

    X.            A Final Report must be provided by the Insolvency Professional who was chosen as the Liquidator for the Corporate Person's Voluntary Liquidation. The Registrar of Companies and the Board of Directors must both submit the final report.

 XI.            The Hon'ble National Company Law Tribunal must receive an application for the dissolution, winding up, or voluntary liquidation of the Corporate Person.

XII.            Within fourteen days of the submission of the application to the Hon'ble National Company Law Tribunal, the decree of dissolution of the Corporate Person must be submitted to the Registrar of Companies.

Grounds

A liquidator is appointed to do the process of winding up of the company. The court may order the company to wind up as per section 433 of the companies act, 2013 on the following grounds:

       I.            Passing of special resolution: The court may issue a winding-up order if a firm has passed a special resolution requesting that it be wound by the court. However, the court may stop the winding-up process if it finds that it is contrary to the public interest or interest of the corporation.

    II.            Default in delivering a statutory report or statutory holding meeting: The court may order the winding up of the company if the company commits any default while filing the statutory report or holding the statutory meeting within the time that is prescribed in the Companies Act, 2013. According to Section 439 (7), it’s the duty of the registrar to present a petition before the expiration of 14 days after the last day the meeting was ought to be held.

 III.             Commencement of business not done: The court may order to wind up the company if the company has failed to start its business after the incorporation or if dismisses its operation for a year. However, this power of the court is discretionary and it cannot be performed unless there is any sign that there is no intention of the company to start the business.

 IV.            Reduction in membership: The court may order to wind up the company if there is a reduction in the members in the company that is, below seven for a public company and below two for a private company.

    V.            Company not able to pay its debts: If the company is unable to pay its debts within three weeks as demanded to pay even when the assets are more than the liabilities of the company.

 VI.            Just and equitable: The court may order wind up on this group if it is noticed that the company is affecting the minor or weaker section of the society. Before passing the same the court will take into account the interests of shareholders, creditors, employees, and of the general people.

 Conclusion

To sum up, any cases filed on or after April 1, 2017, will be dealt with under the Insolvency and Bankruptcy Code, 2016; the authority will be provided to the National Company Law Tribunal solely, and cases pending before the Hon'ble High Court will be dealt with by the Hon'ble High Court only. As a result, according to Rule 4 of the Firms (Transfer of Pending Proceedings) Rules, 2016, which were notified in December 2016 and took effect in April 2017, Voluntary Liquidation of firms pending before any High Court before April 1, 2017, would be handled alone by that High Court. Any new voluntary liquidation proceeding starting on or after April 1, 2017, must be filed with the Hon'ble National Company Law Tribunal and follow the Insolvency and Bankruptcy Code, 2016, and its regulations.

The procedure for winding up is not straightforward, and it takes a long time. It includes a wide spectrum of complexities and complexities. Through its online platform, the Ministry of Corporate Affairs has made the process of registering a business simple and rapid using improvements. To make it easier for firms to wind down, the same ministry will make reforms and create new winding-up formats. Previously, just the Companies Act applied, but the Insolvency and Bankruptcy Code of 2016 has made it more difficult to use these laws and requirements when deciding on a priority.

*Student of B.A.LL.B., National Law University, Aurangabad

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