Winding Up of Company

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Winding Up of Company

     Liquidation is the process by which a company shuts down its activities. The company may decide to close down for a variety of reasons, including a refusal to continue operations, insolvency, and so on. The word ‘liquidation of a company’ refers to the process of selling a company’s assets. The company can sell its assets to meet obligations and repay liabilities.

        If a company is liquidated due to bankruptcy, the liquidator can sell its assets to repay all pending liabilities. The remaining balance, if any, after repayment to the creditors, gets distributed among the shareholders of the company.

Checklist

• Board meetings should be convened for the approval of winding up a company
• The appointment of an official liquidator or insolvency professional should be made
• Simultaneously, an NOC should be obtained from the Income Tax Department
• Before initiating a wind-up process, an intimation should be conveyed to the Insolvency and Bankruptcy Board of India (IBBI) within 7 days from the date of approval of the resolution
• An announcement should be made to the public within 14 days of passing the wind-up resolution in an official gazette, one english newspaper and one local newspaper, where the registered company has been based
• The whole winding up process should be completed within 12 months from the initiation of the liquidation

Types of Company windup

A company can be wound up in two different ways-

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 general meeting passes a resolution which requires a company to wind up voluntarily as a result of the expiry of the period of its duration, any as per the Articles of Association or on the occurrence of any event in respect of which the articles of association provide that the company should be dissolved.

A Private Limited Company can be Changed into the One-Person Company Based on the Following Provisions :

• Convene a board meeting with the Directors in which a resolution should be passed with a declaration by the directors that they have made an enquiry in the affairs of the Company and the company no debts or the Company will pay from the precedes of the assets sold in the voluntary wind up of the company.
• Notices should be issued in writing to call for the general meeting of the Company proposing the resolutions, with a suitable explanatory statement.
• Pass the ordinary resolution for winding up of the Company in the generally meeting by ordinary majority or special resolution by 3/4 majority. The Winding up of the Company shall commence from the date of passing the resolution.
• A meeting of the creditors should be conducted on the same day or the next day of passing the resolution regarding winding up. If the 2/3rd value of the creditors are of the opinion that it is in interest of all parties to windup the Company, the the Company can wound up voluntarily.
• Within 10 days of passing the resolution for company winding up , a notice for appointment of liquidator must be filed with the registrar.
• Within 30 days of the general meeting for the winding up the certified copies of the ordinary or special resolution passed in the general meeting for the winding up of the Company.
• The affairs of the company need to be wind up and prepare the liquidators account of the Winding up account and to get it audited.
• Call for the final General meeting of the Company.
• A special resolution should be passed for the disposal of the books and the papers of the company when the affairs of the company are completely wound up and it is about to be dissolved.
• Within two weeks of the general meeting of the Company, file a copy of the accounts and file and the application to the tribunal for passing an order for the dissolution of the company.
• The tribunal shall pass an order dissolving the company within 60 days of receiving the application.
• The company liquidator is required to file a copy of the order with the registrar.
• The registrar will then on receiving the copy of the order passed by the Tribunal then publish a notice in the official gazette that the Company is dissolved.

2. Compulsory winding up of a company

Tribunal is responsible for this kind of wind up of Companies.

Here are the reasons for the same:

• Unpaid debts of a Company
• When a special resolution is passed fort winding up
• An unlawful act by a company or the management of the Company
• If the company is involved in fraudulent acts or misconduct
• If the annual returns or financial statements are not filed for five consecutive years with the ROC
• The Tribunal is of the view that the company should windup.

Procedure for Compulsory Windingup of Company

– Is to File a petition to the tribunal along with the statement of the affairs of the Company that is to wind up.
– The tribunal will either accept or reject the petition if the person other than company files a petition then the tribunal may ask the company to file objection. it goes along with the statement of affairs within 30 days.
– Liquidator needs to be appointed by the tribunal for the winding up process. The liquidator carries out the function of assisting and monitoring the liquidation proceedings.
– Liquidator is supposed to prepare a draft report for approval. when the draft report gets approved he shall submit the final report to the tribunal for passing the winding up order.
– If the ROC finds the draft satisfactory he then approves the winding up of the Company and the name of the Company is striked from the register of Companies.
– ROC sends notice for Publication in the official gazette of India

What are the reasons to Winding Up of a Company

No Compliance Burden:

Once the company is closed, there does not exist the company as such hence the promoters or directors get free from compliance responsibilities and possible dangers of non-compliance’s. 

Faster route of Closure

Inactive or non-functioning company can be closed swiftly in about 60 to 120 days, whereas traditional methods take longer and are more cumbersome procedures. ​​​​​​

Avoid Fines

If the inactive or non-functioning company is not following legal compliances, it may incur heavy fines, penalties and punishments for the officers of the Company in certain cases including debarment of the Directors from starting another Company. Hence, it is better to officially wind up a company that is inactive and avoid potential fines or liabilities in the future

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