Winding up of a Company

Winding up is the liquidation of Company’s assets which are collected and sold in order to pay the debts incurred. When the company winding up takes place firstly the debts, expenses and costs are paid away and distributed among the shareholders.

Once the Company is liquidated it is formally dissolved and the Company ceases to exist. Winding up is the legal mechanism to shut down a company and cease all the activities that were carried on. After the Company winding up, the existence of the Company comes to an end and the assets are monitored so that the stakeholder’s interest is not hampered.

A Private Limited Company is an artificial judicial person and requires various compliances. If the company fails to maintain these compliances, there are fines, penalties, or even disqualification of the Directors. It is always better to wind up a company that has become inactive or where there are no transactions.

Types of Company windup

What are the different ways in which an individual can wind up a Company?

A company can be wound up in two ways:

• Voluntary winding up of a Company
• Compulsory winding up of a Company

1. Voluntary Winding up of a Company

The Winding up of a Company can be done voluntarily by the members of the Company, if:

• The company passes a special resolution for winding up the Company.
• The company in a general meeting passes a resolution which requires winding up voluntarily due to expiry of the period mentioned in its Articles or occurrence of an event requiring dissolution.

Procedure for Voluntary Winding up

1. Convene a board meeting to pass a resolution with a declaration by directors that the company can repay its debts.
2. Issue written notice for a general meeting with an explanatory statement.
3. Pass the winding up resolution in the general meeting with 3/4th majority.
4. Meeting of creditors to be conducted same or next day. If 2/3rd agree, company can wind up voluntarily.
5. Within 10 days, file notice of liquidator appointment with the registrar.
6. Within 30 days, file certified resolution copies with ROC.
7. Prepare and audit winding up account.
8. Call final general meeting for resolution to dispose of books and accounts.
9. Within 2 weeks, file accounts and apply to tribunal for dissolution.
10. Tribunal passes order within 60 days.
11. Company liquidator files order copy with registrar.
12. Registrar publishes dissolution notice in the official gazette.

2. Compulsory Winding up of a Company

• Unpaid debts of a Company
• When a special resolution is passed for winding up
• An unlawful act by the company or management
• Fraudulent acts or misconduct
• Non-filing of returns or financials for 5 years with ROC
• Tribunal decides that the company should wind up

Procedure for Compulsory Winding up

1. File a petition to the tribunal with a statement of affairs.
2. Tribunal reviews and may ask company to object within 30 days.
3. Tribunal appoints a liquidator for the process.
4. Liquidator prepares a draft report and submits for approval.
5. Final report submitted and winding up order is passed.
6. Liquidator forwards a copy to ROC within 30 days (penalty if delayed).
7. If ROC is satisfied, it approves winding up and closure.