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Closure of a Company

Ronak (Trainee) (126 Points)

30 May 2011

Hi Friends,

We are a private company with a paid up capital of 9 lacs. We want to close our co. how should we go for it? We have only bank balance of 35000 and liabilities of 10000. PLZ Advice.

Thanks , Ronak

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Abhinash Pansari (CA final Article) (101 Points)
Replied 30 May 2011

Voluntary Winding Up of a Registered Company

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:-

By passing an ordinary resolution in the general meeting if :- (i) the period fixed for the duration of the company by the articles has expired; or (ii) some event on the happening of which company is to be dissolved, has happened.
By passing a special resolution to wind up voluntarily for any reason whatsoever.

Within 14 days of passing the resolution, whether ordinary or special, it must be advertised in the Official Gazette and also in some important newspaper circulating in the district of the registered office of the company.

The Companies Act (Section 484) provides for two methods for voluntary winding up:-

Members' voluntary winding up

It is possible in the case of solvent companies which are capable of paying their liabilities in full. There are two conditions for such winding up:-

A declaration of solvency must be made by a majority of directors, or all of them if they are two in number. It will state that the company will be able to pay its debts in full in a specified period not exceeding three years from commencement of winding up. It shall be made five weeks preceding the date of resolution for winding up and filed with the Registrar. It shall be accompanied by a copy of the report of auditors on Profit & Loss Account and Balance Sheet, and also a statement of assets and liabilities upto the latest practicable date; and
Shareholders must pass an ordinary or special resolution for winding up of the company.

The provisions applicable to members' voluntary winding up are as follows:-

Appointment of liquidator and fixation of his remuneration by the General Meeting.
Cessation of Board's power on appointment of liquidator except so far as may have been sanctioned by the General Meeting, or the liquidator.
Filling up of vacancy caused by death, resignation or otherwise in the office of liquidator by the general meeting subject to an arrangement with the creditors.
Sending the notice of appointment of liquidator to the Registrar.
Power of liquidator to accept shares or like interest as a consideration for the sale of business of the company provided special resolution has been passed to this effect.
Duty of liquidator to call creditors' meeting in case of insolvency of the company and place a statement of assets and liabilities before them.
Liquidator's duty to convene a General Meeting at the end of each year.
Liquidator's duty to make an account of winding up and lay the same before the final meeting.

Creditor's voluntary winding up

It is possible in the case of insolvent companies. It requires the holding of meetings of creditors besides those of the members right from the beginning of the process of voluntary winding up. It is the creditors who get the right to appoint liquidator and hence, the winding up proceedings are dominated by the creditors.

The provisions applicable to creditors' voluntary winding up are as follows:-

The Board of Directors shall convene a meeting of creditors on the same day or the next day after the meeting at which winding up resolution is to be proposed. Notice of meeting shall be sent by post to the creditors simultaneously while sending notice to members. It shall also be advertised in the Official Gazette and also in two newspapers circulating in the place of registered office.
A statement of position of the company and a list of creditors along with list of their claims shall be placed before the meeting of creditors.
A copy of resolution passed at creditors' meeting shall be filed with Registrar within 30 days of its passing.
It shall be done at respective meetings of members and creditors. In case of difference, the nominee of creditors shall be the liquidator.
A five-member Committee of Inspection is appointed by creditors to supervise the work of liquidator.
Fixation of remuneration of liquidator by creditors or committee of inspection.
Cessation of board's powers on appointment of liquidator.

As soon as the affairs of the company are wound up, the liquidator shall call a final meeting of the company as well as that of the creditors through an advertisement in local newspapers as well as in the Official Gazette at least one month before the meeting and place the accounts before it. Within one week of meeting, liquidator shall send to Registrar a copy of accounts and a return of resolutions.