Winding Up of a Company Service

Winding up A Company

Liquidation describes the financial and economical state of a business organization that has gone bankrupt and hence, become insolvent. Liquidation is a process carried out after winding up a company to distribute its assets so as to reimburse the creditors and shareholders’ capital based on their priority of claims.

In a layman format, Winding up a Company refers to the closing of a company. That means terminating the business cycle of an organization and ceasing all the business-related operations. Liquidation is carried out once a business body shuts down to repay all the pending liabilities.

WAYS TO WIND UP A COMPANY

Bankruptcy, closure of business, and passing away of promoters, etc. maybe some reasons behind winding up a business. This is achieved in accordance with the norms directed by the government for winding up a company under The Companies Act, 2013. This process may be executed through different means such as to be initiated voluntarily by the shareholders or creditors, or tribunals.

1 – Tribunal wind up of a company

Despite the willingness of directors of a company, a company may have to shut down due to the orders from higher authorities i.e., from tribunals or courts under section 270 of The Companies Act, 2103 if found indulged in any unlawful activities. In such situations, it becomes compulsory for the owners to terminate their business activities.

There exist numerous reasons behind compulsory winding-up of an organization

• A tribunal may order to sue a company if they are found practicing any fraudulent activities or keeping the nation’s sovereignty, integrity, or security at stake for any reason.
• A company may be wound up if it has not filed returns or conducted annual audits for five consecutive financial years.
• Or if a tribunal is of the opinion to wind up a company based on some equitable and appropriate reasons.

Procedure for compulsorily wind up

The petition of a compulsory wind up may be filed by the Registrar of Companies (ROC), Creditors of the Company, the Central/State Government, the Contributors, or the Company itself.

The tribunal may permit an authorized entity to file a petition for winding up a company for appropriate reasons. Further, the tribunal assigns a liquidator for an approved petition within 90 days of the date of filing the petition. Then the liquidator comes into play and manages to maintain a record of all the assets and audits of the company. This report shall then be presented before the tribunal after acceptance of the winding-up community.

2 – Voluntary winding up of a company

The winding of a company may be done voluntarily by the creditors or the members of the company. This can be initiated on any special resolution or a resolution taken during a general body meeting for violating any norms of the Memorandum of Association (MOA), or any financial crisis.

MEMBER’S VOLUNTARY WINDING UP

A company may resolve its pending liabilities conflicts through solvency. A member’s voluntary winding-up can be commenced by the board of directors by the declaration of solvency to pay the debts in full.

This declaration must be filed with the Registrar of Companies (RoC) at least 5 weeks before passing the resolution for winding up. Additionally, a copy of the final audit shall be made with all details of the inward and outward supply. A balance sheet and a statement of assets and liabilities must be maintained.

CREDITOR’S VOLUNTARY WINDING UP

A creditor’s voluntary winding up can be practiced via a special resolution undertaken by the shareholders of the company under the scrutiny of the company’s creditors. This form of company’s winding can be conducted only if the company is insolvent and either the court has already ordered wound up of the company or an administrator has already been appointed.

Procedure

The meeting board passes the special resolution after ensuring that the company is insolvent and providing a summary affair on ASIC Form 509. Further, the members assign a liquidator and the company is obliged to provide their business details, its properties, and financial circumstances via the ASIC Form 507. Finally, the liquidator looks after the successful completion of the winding up and ensures distributing the funds within the creditors as per their claims.

CHECKLIST RULES FOR WINDING UP A COMPANY

• The winding of the company must be in approval with the meeting of the boards.
• A meeting shall be called for passing the special resolution for the liquidation of the company.
• The resolution must be acknowledged by the income tax department and the No Objection Certificate shall be obtained from the related authorities.
• A creditor dominated company must ensure their approval in signing up a resolution for winding the company.
• In 10 days, the company has to file a notice to the registrar for the liquidation of the company.
• In 14 days, news has to be given to everyone including publishing it in a newspaper.
• The process involves closing off all the work done in a company within a span of 12 months but prior notice has to be given to the employees and all the holders in the company.