WINDING UP- PROCEDURE UNDER COMPANIES ACT, 1956
Winding up is the process by which the normal activities of the corporation or association of person is stopped and the assets and liabilities of the association is assessed and distributed among the shareholders as per the existing agreement. On winding up, the organization ceases to be a going concern. The owners are eligible to get the share of residual property and may require to compensate in the event the assets are insufficient and the existing agreement so specifies.
As section 425 of the Act, a company may be wound up in any one of the following ways:
(a) by the court making a winding-up order (compulsory winding up) and
(b) by passing of an appropriate resolution for voluntary winding up at a general meeting of members (voluntary winding up)
Voluntary winding can further be divided into members’ voluntary winding up and creditors’ voluntary winding up.
COMPULSORY WINDING UP
As per section 433, company may be wound up by the High Court/Tribunal on:
· Passing a special resolution
· Failure to hold statutory meeting
· Failure to commence business
· Reduction in number of members below minimum
· Inability to pay its debts
· Arrears of unpaid salary and the dues of an employee, is not a debt within the meaning of this expression in section
· Winding up on just and equitable grounds
· Default in filing with the Registrar the balance sheet or annual return
· Acting against the interest of the country
· If the company is a sick industrial company and is not likely to become viable in future
The company itself, the creditor, any Contributory, registrar or any person authorized by central government in case of oppression or mismanagement an apply to the court, for petition for winding up.(Section 439)
Under section 443, the court may pass any one of the following orders on hearing the winding up petition:
· Dismiss it, with or without costs
· Make any interim order, as it thinks fit, or
· Pass an order for winding up of the company with or without costs.
Court will send notice to an official liquidator, to take charge of the company. He shall carry out the process of winding up. (Section 444). The company shall submit relevant particulars, relating to, assets, cash in hand, bank balance, liabilities, particulars of creditors etc, to the official liquidator. (Section454) As per section 455, the official liquidator shall within six months, from the date of winding up order, submit a preliminary report to the court regarding
· Particulars of Capital
· Cash and negotiable securities
· Movable and immovable properties
· Unpaid calls, and
· .An opinion, whether further inquiry is required or not.
The Central Govt. shall keep a cognizance over the functioning of official liquidator, and may require him to answer any inquiry. (Section 463) Where, the court has passed a winding up order, it may stay the proceedings of winding up , on an application filed by official liquidator, or creditor or any contributory. (Section 466)
Under section 481, court will order for dissolution of the company, when:
· the affairs of the company are completely wound up, or
· the official liquidator is unable to carry on the winding up procedure for want of funds.
An appeal from the decision of court will lie before that court, before whom, appeals lie from any order or decision of the former court in cases within its ordinary jurisdiction under section 483.
MEMBERS’ VOLUNTARY WINDING UP
Board meeting shall be convened by issuing notice to all the directors of the company. Within 5 weeks, immediately preceding the date of resolution for winding up, make sure that the company can pay its debts in full within a period of 3 years, if the company is put to liquidation. A declaration has to be made therein to this effect in Form 149 prescribed under rule 313 of the Companies (Court) Rules, 1959. The declaration should also be verified by an affidavit.
As per sec. 488 (2), such declaration shall be accompanied by:
- (i)the audited balance sheet and the profit and loss account ending on the latest practicable date before the date of declaration
§ (ii) a statement of the company's assets and liabilities as at that date; and
- (iii) a copy of the report of the auditors of the company on the above two documents.
Under sections 484 & 490, in the said Board meeting
- the draft of the resolution for putting the company into members' voluntary winding up
- appointing liquidator(s) and
- fixing his/their remuneration
It should also fix the date, time, place and agenda of the general meeting
If the winding up takes place as per the period or event determined in the articles of association, then the resolution required will be an ordinary resolution, otherwise a special resolution will be required. (Sec 484(1))
It is to be confirmed that a body corporate is not appointed as a liquidator. (Sec. 513) The declaration in Form 149 should be duly verified by an affidavit before a Judicial Magistrate and deliver the same with the concerned Registrar, with the e-Form 62 before the general meeting is held for passing the resolution for winding up. (Sec. 488(2)(a)). Notices for the general meeting (not less than 21 days before the meeting) in writing proposing the ordinary or special resolution, as the case may be, with suitable explanatory statement are to be issued. (484(1)(a) and (b))
The next step is to hold the general meeting and pass the ordinary resolution by ordinary majority or special resolution by 3/4th majority for winding up as the case may be.
· file a notice with the e-Form 62 electronically with the concerned Registrar for the appointment of liquidator
· requisite fee as prescribed under Schedule X to the Companies Act, 1956 in the prescribed manner.
A statement on the company's affairs in the prescribed form in duplicate, duly verified in e-Form 58 within 21 days from the commencement of winding up has to be submitted to the liquidator.
The certified copies of the special or ordinary resolution as the case may be for winding up along with the explanatory statement with the concerned Registrar within 30 days of its passing in e-Form 23 with the requisite fees as per Schedule X of the Act are to be filed.
Within 14 days of passing of the resolution for voluntary winding up,
· give a notice of the resolution in the Official Gazette and
· also advertise at least in two newspapers, one in English and one in local language circulating in the district where the registered office of the company is situated. (Sec. 485(1))
Confirm that the liquidator files
· a notice of his appointment with the concerned Registrar together with
· the e-Form 62 in Form 152 of the Companies (Court) Rules, 1959, and
· publish the same in the Official Gazette in Form 151 of the said rules within 30 days of his appointment. (Sec 516 and rule 315 of Companies (Court) Rules, 1959)
Also confirm that the liquidator gives notice of his appointment to the Income Tax Commissioner having jurisdiction on the company within 30 days of his appointment. (Sec 178 of the Income-tax Act, 1961)
If the liquidator at any time form an opinion that the company will not be able to pay its debts in full
· he has to summon forthwith a meeting of the creditors, and
· lay before the meeting a statement of the assets and liabilities of the company in Form 150 of the Companies (Court) Rules, 1959. (Sec. 495 and rule 314 of the Companies (Court) Rules, 1959)
In case if the process of winding up continues for more than a year, liquidator shall call a general meeting within 3 months from the end of every year from the date of commencement of winding up, or within such longer period as the Central Government may allow and lay before the meeting, the account of his acts and dealings and the statements in Form 153 of the Companies (Court) Rules, 1959, and duly verified in Form 154 of the said Rules. (Sec. 496)
If the winding up is not concluded within a year after its commencement then the liquidator shall file a statement with the concerned with the e-Form 62 twice in every year. (Rule 327 of the Companies (Court) Rules, 1959) The first year's statement should be duly audited for the full year, from the commencement of winding up and subsequent statement in every 6 months. (Form 153 of the Companies (Court) Rules, 1959). The aforesaid 2 statements should be duly verified in Form 154 of the said Rules and file the same with the concerned Registrar, electronically with the e-Form 62 within 12 months from the end of the year. (Rule 327 of the Companies (Court) Rules, 1959 and section 551).
Finally the winding up has to be completed by
· realizing all assets and
· paying of all liabilities and
· returning the share capital and surplus, if any. (Secs. 426 to 432, 452, 487, 491, 511, 511A, 512, 514, 515, 517 to 520, 528 to 549 and 553 to 556)
As soon as affairs of the company are fully wound up, prepare the liquidators account of the winding up in Form 156 of the Companies (Court) Rules, 1959 and get the same audited. (Sec. 497)
The final general meeting shall be called, by giving notice in Form 155 of the Companies (Court) Rules, 1959. The notice has to be given not less than 1 month before the meeting in the Official Gazette and should also give advertisement in some newspaper circulating in the district where the Registered Office of the company is situated.(Sec. 497) The company should also pass the 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. (Sec. 550)
Within a week of the final meeting,
If quorum is not present, in the aforesaid meeting, file a return in Form 158 of the Companies (Court) Rules, 1959.( Rule 331 of the Companies (Court) Rules, 1959)
The Court/Tribunal may in a fit case, declare the dissolution void within 2 years of the date of dissolution on application
· by the liquidator of the company or
· by any other person who appears to the Court/Tribunal to be interested.
A person who obtains the said order of the Court/Tribunal shall, file the certified copy of the Court/Tribunal's order with the Registrar in the e-Form 21 electronically within 30 days or such further time as may be allowed by the Court/Tribunal paying the requisite fee prescribed under Schedule X to of the Companies Act, 1956 in the prescribed manner.
CREDITORS VOLUNTARILY WINDING UP
Where the resolution for winding up has been passed, but the Board of Directors are not in a position to give a declaration on the liability of company, they may call a meeting of creditors, for the purpose of winding up. (Sec.500) It is the duty of Board of Directors, to present a full statement of company’s affairs, and list of creditors alongwith their dues, before the meeting of creditors(Sec.50(3)) Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar within ten days of its passing. (Sec.501) Company in the general meeting [in which resolution for winding up is passed], and the creditors in their meeting, appoint liquidator. They may either agree on one liquidator, or if two names are suggested, then liquidator appointed by creditor shall act.(Sec.502)
Any director, member or creditor may approach the tribunal, for direction that:
The remuneration of liquidator shall be fixed by the creditors, or by the tribunal.(Sec.504) On appointment of liquidator, all the power of Board of Directors shall cease. (Sec.505) As per section 509, the liquidator shall take the following steps, when affair of the company are fully wound up:
Restrictions on the appointment of body corporate as Liquidator in case of a voluntary winding up.(Sec.513) The Central Govt. shall keep a cognizance over the functioning of official liquidator, and may require him to answer any inquiry. (Sec. 463).
The recent 2002 amendment to the Companies Act has brought with it the following reforms to this area.
i. NCLT to sanction scheme for revival.
ii. In absence of consent to scheme, NCLT may order for winding up or take other appropriate measures
iii. Once sanctioned, the scheme becomes binding on all by operation of law
iv. A scheme may be modified in Implementation process
v. An aggrieved person may appeal before NCLAT and then to Supreme Court
vi. NCLT empowered to recommend winding up of SIC where it concludes that the net worth cannot be turned positive within reasonable time and it is just and equitable
vii. No suspension of legal proceedings and Contracts unlike the provision under SICA
viii. Misfeasance proceedings –NCLT empowered to fix liability
ix. Formation of Rehabilitation and Revival Fund.