Winding Up of Company

INR 15899 All Inclusive

Basic

  • Accounts Finalisation
  • Winding Up drafting
  • Winding up filing
  • ITR – 6 filing

Winding up of a Company

The winding up of a company, also known as liquidation, is the formal process through which a company’s business operations come to an end, ultimately resulting in its dissolution. This involves the systematic closure of the company’s affairs, which includes selling off assets, settling debts from the proceeds, and distributing any remaining surplus to shareholders according to their stake in the company. The process can be initiated by a court order or voluntarily through a resolution passed by the company. Once the winding-up proceedings are complete, the company is officially dissolved and ceases to exist, marking the end of its legal and corporate identity.

At Allycon, we provide specialized services to ensure a smooth and efficient winding-up process for your company, offering expert guidance and support every step of the way.

What is the Winding Up of a Company?

The term “winding up” is defined under Section 2(94A) of the Companies Act, 2013. It refers to the formal closure of a company by following the procedures outlined in the Companies Act or by liquidation under the Insolvency and Bankruptcy Code, 2016. This process involves stopping regular business activities, selling off the company’s assets, and repaying debts, ultimately leading to the company’s dissolution. However, during the winding-up phase, the company retains its legal entity status, allowing it to be involved in legal proceedings in the Tribunal. The main goal of winding up is to ensure an orderly conclusion of the company’s operations and fair distribution of its assets.

Modes of Winding Up Under the Companies Act

Under Section 293 of the Companies Act, 2017, a company may be wound up in the following ways:

  1. Compulsory Winding Up (by the Court): This process is initiated by a court order, often when a company is unable to pay its debts or when it’s deemed just and equitable to dissolve the company. The court appoints a liquidator to manage the winding-up process, which includes selling assets, settling debts, and distributing any remaining surplus to shareholders.

  2. Voluntary Winding Up: This mode is initiated by the company’s members or creditors. It can be done through a shareholders’ resolution if the company is solvent, or a creditors’ resolution if the company is insolvent. The company appoints a liquidator to oversee the process without involving the court.

  3. Winding Up Subject to the Supervision of the Court: In certain cases, the voluntary winding-up process is conducted under the supervision of the court. This is done to protect the interests of stakeholders and ensure that the process is transparent and fair.

Voluntary Winding Up of a Company

Voluntary winding up is initiated by the members of a company without requiring court intervention. This process can commence under two primary conditions:

  1. By Special Resolution: When the company’s shareholders pass a special resolution to voluntarily wind up the company.
  2. Expiry or Event as Per Articles of Association: When the company’s lifespan, as mentioned in its Articles of Association, expires, or upon the occurrence of an event mentioned in the Articles, the company is wound up voluntarily.

Documents Required for Voluntary Winding up of a Company

For a voluntary winding up, the following documents are required:

  • Special Resolution (Form-26): Evidence of the decision to wind up the company.
  • Declaration of Solvency (Form 107): Statement confirming that the company can pay its debts.
  • Directors’ Affidavit: Verification of financial documents like auditor reports and accounts.
  • Liquidator’s Consent: Agreement from the liquidator to handle the winding-up process.
  • Notice of Winding Up Resolution: Official notification of the company’s decision to wind up.
  • Notice of Liquidator Appointment: Published notice about the liquidator’s appointment.
  • Preliminary and Final Liquidator’s Reports: Reports prepared by the liquidator outlining the winding-up process and final settlement.

Procedure for Voluntary Winding-up

The voluntary winding-up process follows these key steps:

  1. Declaration of Solvency: The directors assess the company’s financial position and declare that it can pay its debts.
  2. Shareholders’ Approval: Shareholders pass a special resolution to wind up the company voluntarily and appoint a liquidator.
  3. Notification of Resolution: The resolution to wind up is published in the Official Gazette and filed with the Registrar.
  4. Creditors’ Meeting (if required): The liquidator may convene a meeting with creditors if the company is unable to pay its debts.
  5. Final Report and Meeting: Upon completing the process, the liquidator prepares a final report and presents it at a shareholders’ meeting.

Compulsory Winding Up of Company

Compulsory winding up is a court-supervised process initiated under specific conditions:

  • Unpaid Debts: The company is unable to pay its debts.
  • Special Resolution: The company’s members pass a resolution to dissolve.
  • Unlawful Acts or Fraud: Engaging in illegal activities or fraudulent practices.
  • Non-compliance with ROC Filings: Failure to file annual returns for five consecutive years.

The process includes filing a petition, tribunal review, appointing a liquidator, and dissolving the company once the winding-up order is finalized.

Winding-up of Company Under Court Supervision

This process occurs when the court oversees a voluntarily initiated winding-up to ensure that stakeholders’ interests are protected. The court may intervene to supervise the process, providing transparency and fairness.

Implications of Company Winding Up

The winding-up process impacts various stakeholders:

 

  • Company: The company remains a legal entity until dissolution, though its management shifts to the liquidator.
  • Shareholders: Shareholders may bear additional liability, and share transfers are frozen.
  • Creditors: Creditors must formally submit claims to the liquidator for settlement.
  • Management: The liquidator takes over all powers previously held by the company’s directors.

Duration of the Winding-up Process

The time it takes to wind up a company varies depending on its size, complexity, and legal requirements. Typically, preparing for liquidation and settling debts can take 2-3 months, while the entire process may extend up to a year or more.

Simplify the Winding-Up Process with Allycon! At Allycon, we streamline the company winding-up process, offering end-to-end support to ensure a hassle-free closure. Our experts guide you through legal procedures, ensuring compliance and a smooth liquidation process. Contact us for professional assistance in winding up your company.

Related Business Registrations

In addition to registration or incorporation, a business may require other registrations depending on the business activity undertaken. Talk to an Advisor to find out registrations your business may require post registration.