HOW TO WIND UP A REGISTERED COMPANY?

What is Winding Up?

Like any other thing, a company also has a definite life span; although it is perpetual in nature, sometimes the life of a company also comes to an end. Whenever a company's life is ended, and its property is dispensed for the benefits of its members and creditors, the process is called Winding up of a company. Winding up involves collecting assets and properties of a company to pay off the company's debts. When they are fulfilled, if any surplus is left, it is distributed among the members. To implement winding up, an administrator called a Liquidator is appointed who assists and monitors the process of Liquidation. Usually, when winding up comes into the picture, we think the company must be red or insolvent. This thought is partially correct, but only an insolvent company doesn't need to wind up in every case. A perfect solvent company can also opt for winding up whatsoever reason maybe.

How can winding up be done?

The Companies Act 2013 gives two modes through which companies can be wound up:-

• Compulsory Winding Up or Winding up by the Tribunal
• Voluntarily Winding Up

1. Compulsory Winding up or Winding Up by the Tribunal

In many cases, companies don't have any choice but to wind up. Section 271 of The Companies Act, 2013 deals with such cases of Winding-up by the Tribunal. There can be many grounds when the petition for winding up of a company can be made to the Tribunal:-

• If by Special Resolution, the company has resolved that the Tribunal would wind it up,
• If, even after one year of its incorporation, the company fails to commence its business and has no intention to carry on the business,
• If the company is unable to repay its debts to its creditors
• If at any time Tribunal is of any opinion that the company should be wound up
• If the company has made any default in filing with the Registrar regarding balance sheet and profit and loss account in the last five consecutive years

Eligibility:

The winding-up petition can be made by :

• By company in case of a special resolution
• A creditor of the company
• Registrar on any ground approved by the Central Government
• Central or State Government
• Any person authorized by the Central Government in an investigation where any intention of the company to defraud its creditors is suspected from their reports.

Procedure:

• Once the Court has passed the winding-up order, the Central Government will appoint an official liquidator.
• The Court will send the notice to the liquidator to take charge of its assets and properties.
• The liquidator will get the process of winding up done for the company.
• The winding-up order of the Court shall be binding upon all the creditors irrespective of the fact that they filed for the petition or no.t
• The company shall hand over all the relevant documents relating to assets, cash in hand, liabilities, bank balance to the liquidator.
• Within six months from the date of winding up order, the official liquidator shall submit a preliminary report to the Court regarding:-
  • Capital
  • Cash and Negotiable securities
  • Movable and Immovable properties
  • All the liabilities

Once all the debts are paid off, it is distributed among the company members if any surplus is left. The liquidator also has to show a complete account to the Court regarding how the operations have been done and how the properties have been disposed of. The Court thus pronounces the dissolution of the company.

2. Voluntarily Winding up of a company

Voluntary Liquidation is the process of liquidating the company with its members' approval by passing an ordinary or extraordinary resolution. Usually, when a company decides to go for voluntary winding up, it doesn't wish to move ahead with its business operations; it wants to dispose of its assets while paying all its debts. It is administered by the Insolvency and Bankruptcy Code 2016. Any company passing a special resolution in their board meeting can proceed with winding up of the company.

Procedure for Special Resolution:

• The directors of the company shall declare their solvency in Form GNL-2 with the Registrar of Companies.
• The Board shall appoint a liquidator to conduct the liquidation process.
• A board meeting should be convened, giving their approval for it.
• A general meeting of shareholders should be convened in which a special resolution should be passed.
• The Resolution has to be filed to the Registrar of Companies and Insolvency and Bankruptcy Board of India (IBBI)
• The company shall make a public announcement within five days of a liquidator's appointment in English and Regional newspaper where the company's registered office is situated and on the company's website.
• Within 45 days from the beginning of the liquidation process, the liquidator shall submit a preliminary report to the company stating their capital structure, estimation of assets and liabilities, and any proposed plan of action to be carried out by him during the process.
• A bank account in any scheduled bank shall be opened where all the money-related activities shall be done.
• A NOC shall be taken from the tax authorities.
• The liquidator shall recover and realize the company's assets, and proceeds shall be distributed to the stakeholders within six months, deducting the liquidation cost.
• A 1-year liquidation process has to be completed, and extending beyond that annual report regarding it should be given.
• A final report containing audited accounts, a statement showing assets are disposed of, and no debt is pending, and a sale statement should be prepared, and it should be filed with the ROC and IBBI.
• When all the formalities regarding winding up are completed, the liquidator has to apply to NCLT for the dissolution of the company.
• NCLT would then pass an order stating that the company has been dissolved
• The order shall be forwarded to ROC, where the company is registered.
• The liquidator has to preserve the copy of the order and reports for at least eight years after the company's dissolution.

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Author: Gouri Menon