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Unit 5 Winding Up of Companies

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Unit 5 Winding Up of Companies

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UNIT 5

WINDING UP OF COMPANIES

Syllabus-

Meaning – Modes of Winding up; Official Liquidator-Powers and Duties; Consequences of Winding
up

Introduction

• Company being an artificial person comes to existence by law and ceases to exist by law.

• Winding up of company is the process of putting an end to the life of the company.

Meaning of Winding up of Companies

It is a procedure in which company is dissolved and in the course of dissolution all the assets of the
companies are collected and debts are paid off.

Only 3 parties can initiate the winding up of company-

 Shareholders

 Creditors

 Tribunal

Modes of winding up

• Compulsory winding up by the court of law

• Voluntary winding are of two types

 Members’ voluntary winding up


 Creditors’ voluntary winding up

• Winding up under the supervision of court of law

Compulsory winding up by the court of law - The Company may wind up by the orders of court
and it is called as compulsory winding up.

Compulsory winding up can be due to the following reasons-

 When the company has passed the special resolution affecting that the company is
wound up by the Court or Tribunal. Has acted against the interest of the sovereignty and
integrity of the country.Default in holding statutory meeting.
 Failure to commence the business within a year after getting COI / COC.
 Reduction of members below minimum.
 Inability to repay the debt. (Insolvency)
• Voluntary winding - Self imposed liquidation of the company with the approval of
shareholders.

 By Members - When the company is able to repay its debts, BOD may declare solvency
that the company would be able to meet the debt within 3 years from the date of
liquidation.
 The purpose is to terminate the operations of the company and wrap up its financial affairs.

Reasons for Members voluntary winding up

When the assets of the company are sold.

When the debts of the company are paid.

• Creditor’s voluntary winding up - When the declaration of solvency is not made by the
BODs and submitted to ROC, the creditors themselves may initiate the process of liquidation.
All the powers of BOD will cease.

Reasons for creditors winding up

No chance of repayment of debt by the company.

When the company has ceased trading.

 Winding up under the supervision of court of law- In this case the court itself supervises
the process of liquidation. However, resolution of winding up is passed by the members in
General meeting.

Official liquidator- Official liquidator is an officer appointed by the high court to assist the court
in completing all the formalities relating to winding up.

• He is responsible for calculating the value of all the assets and settling all the claims against
the company before winding up.

• He is the whole time officer of the Central Government.

Powers and duties of Official Liquidator-

The powers of the official liquidator are prescribed in Companies Act, 2013. He shall exercise all
the power that is prescribed in Companies Act, 2013. Powers and Duties as per the act are -

• Assessment of book value of the asset.

• E shall take the custody of all the assets and actionable claims of the company.

• He shall report to the Central Government his opinion relating to any fraud in the process of
formation or daily activities of the company.

• He shall investigate the affairs of the company whenever necessary.

• To sell the movable and immovable properties of the company through the process of public
option.

• He can use the common seal of the company whenever necessary.


• He shall call for debtors metering asking them to repay back the debts of the company.

• He shall take the claims of the creditors and file an appeal to the central government.

• After the liquidator is satisfied that the company shall wind up he shall submit the official
report to the Central Government.

• Power to investigate; conduct enquiries as per the directions of tribunal or Central


Government with respect to the matters relating to winding up.

Consequences of winding up

• Voluntary liquidation shall commence at the time of resolution being passed by the members
in the general meeting.

• In the course of liquidation the company will cease to carry out its daily business activities.

• Any transfer or alteration of the shares made after the commencement of liquidation process
shall become void.

• On appointment of Official Liquidator the powers of BOD shall cease and transferred to
official liquidator.

• A notice of discharge is given to the employees of liquidating company.

• After the company is dissolved the name of the company is struck off from the register
maintained by the ROC and it’s legal personality comes to an end.

• The COI and COC shall stand cancelled and invalid.

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