Closure of company

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08 September 2013 what is the easiest way to close a company and which form is to be filed. please let me know

Ajay Mishra

Ajay Mishra (Expert)
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09 September 2013 Hi

Companies registered under the Act may put an end to their affairs by winding up their business. This is carried out by realisation of the assets and applying the proceeds in payment of its debts and liabilities and if there is any balance left after meeting the liabilities, the same is paid back to the members in proportion to the contribution made by them to the capital of the company.

Section 425 provides that a company may be wound up in the following ways:—
(a) by the Court/Tribunal, or;
(b) by the members voluntarily.

Ajay Mishra

Ajay Mishra (Expert)
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09 September 2013
WINDING UP BY THE COURT/TRIBUNAL
Section 433 provides that a company may be wound up by the High Court/Tribunal,—
(a) if the company has by special resolution resolved that the company be wound up by the Court/Tribunal;
(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting;
(c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;
(d) if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two;
(e) if the company is unable to pay its debts;
(f) if the Court/Tribunal is of the opinion that it is just and equitable that the company should be wound up;
(g) if the company has made a default in filing with the Registrar, its balance sheet and profit and loss account or annual return for any five consecutive financial years;
(h) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality;
(i) if the Court/Tribunal is of the opinion that the company should be wound up under the circumstances specified in section 424G:
Provided that the Court/Tribunal shall make an order for winding up of a company under clause (h) on an application made by the Central Government or State Government.

Ajay Mishra

Ajay Mishra (Expert)
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09 September 2013 Circumstances in which a company may be wound up by the Court/Tribunal

In terms of the provisions of section 433 of the Act, a company may be wound up in any of the following circumstances:—

Passing a special resolution

Where the company has, by a special resolution, resolved that the company may be wound up by the Court/Tribunal, it may present an application to the Court/Tribunal for winding up.

Failure to hold statutory meeting

Every public company limited by shares or a public company limited by guarantee and having a share capital is required by section 165, to prepare a statutory report within a period of not less than one month and not more than six months from the date at which the company is entitled to commence business, and send it to the shareholders and the Registrar of Companies duly certified at least 21 days before the statutory meeting is held. The company shall also hold the statutory meeting and shall, inter alia, approve the statutory report.

Failure to commence business
Where a public company or a private company does not commence business within a year from its incorporation or where a company suspends its business for a whole year, a petition for winding up will lie. It is expected that the public company shall obtain the certificate to commence business within a reasonable time and also take action to commence business. On the other hand, a private company is authorised to commence business immediately on formation. Where in either case the company has not commenced its business within a year of its incorporation or within a reasonable period, it will be a ground for winding up.

Reduction in number of members below minimum

Where the number of members in a public company is reduced to less than seven or in a private company to less than two and the position continues for a long time, it will be a ground for winding up by the Court/Tribunal.

Ajay Mishra

Ajay Mishra (Expert)
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09 September 2013
MEMBERS' VOLUNTARY WINDING UP

Circumstances in which voluntary winding up may be made
A company may be wound up voluntarily, in case—
(i) where a company is formed for undertaking a fixed object and the articles provide that the company is to be dissolved on the completion of the object, the company may be dissolved voluntarily where an ordinary resolution is passed at a general meeting;
(ii) where the proposal is approved by a special resolution passed at the general meeting of the company. (See Appendix 2)

Publication of the resolution of winding up
Section 485 provides that where a company has passed a resolution for voluntary winding up, notice of the resolution shall be given within 14 days of the passing of the same by advertisement in the Official Gazette and also in some newspaper circulating in the district where the registered office is situated.

Commencement of winding up
In terms of the provisions of section 486 of the Act, a voluntary winding up shall be deemed to commence at the time when the resolution for voluntary winding up is passed by the members.

Company may carry on business activities until the order for winding up is passed
In case of Orkay Industries Ltd. v State of Maharashtra (1999) 32 CLA 94 (Bom), it was held that it could not be said that on the presentation of petition for winding up, the affairs of a company would come to a standstill. Mere presentation of winding up petition would not prevent the company from continuing its business and its directors would not ceased to be directors until an order of winding up is passed by the Court (now Tribunal) or a provisional liquidator had been appointed.

Declaration of solvency

Section 488 of the Act provides that in case of a members' voluntary winding up, within five weeks immediately preceding the date of the passing of the resolution a declaration shall be made by two directors or where there are more than two directors, by a majority of the directors, at a meeting of the Board of directors, to the effect that they have made a full enquiry into the affairs of the company and that, having done so, they have formed the opinion that the company has no debts or that it will be able to pay its debts in full within such period not exceeding three years from the commencement of the winding up as may be specified in the declaration.
The declaration should also be duly verified by an affidavit and it should be accompanied by a copy of the report of the auditors of the company or the profit and loss account from the date upto which the last such account was prepared and ending with a date on close to the date of declaration as possible and on the balance sheet as on that date. The declaration and the auditor's report shall be filed with the Registrar of Companies with the e-Form 62 before the date of the resolution.
In case where the declaration has not been so made and delivered, it will be treated as a creditors voluntary winding up. Therefore, requirement of section 488(2) is mandatory in nature in as much as not only a declaration is required to be made but the same is required to be delivered within the period as provided under clause (a) of sub-section (2) of section 488 of the Companies Act. [Surat Dyes v Arya Silk Mills Pvt. Ltd. (2005) 125 Comp Cas 212 (Guj)].

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