Winding Up of Company


Running a business has a set of challenges and complications. When the business do not work properly, it is better to shut down. There are some ways to wind up the private limited company in India such as selling the company, mandatory closing up,closing the company voluntarily and closing the defunct company.

Closing down a private limited company is a tedious, but necessary, procedure. Without doing so, you would need to annually meet the requirements of the Registrar of Companies (which means spending money on audit and compliances). The bigger reason you would want to do this, of course, is because it releases the assets and investments made by you. The procedure for winding up of a company can be initiated voluntarily by the shareholders or forced by a tribunal or a court. We will first dicuss voluntary winding up of a company and later forced closure:

Voluntary Winding Up Of a Company

When Shareholders Can Wind Up A Company

To begin the procedure for winding up a company, the shareholders must:
a) Pass a special resolution in a board meeting
b) In a general meeting, pass a resolution requiring that a company be wound up on account of expiry of a duration specified in the articles of association (AoA) or the meeting of a condition specified in the AoA requiring it to be wound up.


Procedure for Winding Up


1. The majority of directors (or both, in case there are two directors) should convene a board meeting at which the directors should declare that the company has no debts or that its debts can be repaid from the proceeds of the winding up of the company. Finally, a date, time and agenda should be fixed for a general board meeting five weeks from the board meeting and issue notices for this meeting, giving suitable explanation.

2. On the day of the general board meeting, pass an ordinary resolution with ordinary majority or special resolution with 3/4th majority. Immediately, the directors must meeting with the creditors of the company. If 2/3rds, in value terms, of creditors agree to the winding up of the firm, it may be wound up voluntarily. If not, a Tribunal will have to wind up the company.

3. Within 10 days of passing the resolution, the Registrar of Companies will need to be informed, to appoint a liquidator. The powers of the directors would devolve upon this person and he would be primarily responsible for accumulating all the assets of the company and paying off its debts. The surplus would then be distributed among the members.

4. 14 days from the passing of the resolution, notice of the resolution would need to be given in the Official Gazette and an advertisement in the district where the registered office is present.

5. Within 30 days from the passing of the resolution, a statement of accounts has to be prepared, stating that there are no assets and liabilities except share capital and profit and loss debit balance. An affidavit and indemnity needs to be executed by all directors. If there is any unsecured loan, a waiver letter should be submitted.

6. Call for the General Board Meeting, at which a special resolution will be passed for disposal of accounts.

7. Within two weeks, file the accounts and special resolution with the Registrar. If the Registrar is satisfied, it will pass an order stating that the company be wound up within 60 days.

Closure by a Tribunal

The Companies Act, 2013 contains several new rules for closure of a company, updating those contained in the Companies Act, 1956.

A major one is that the Act specifies that a company can be wound up by a Tribunal for any one or more of the following reasons:
1. If the company is unable to repay their debts/loans;
2. If the set-up (company) has a resolution put up that it can be dissolved or wound-up through a tribunal under certain conditions;
3. If the company has not filed returns or submitted financial statements for five consecutive years;
4. If the company has acted against the integrity and sovereignty of the country and has interfered against the relationship between neighbouring or foreign countries and India;
5. If the tribunal has decided (by means of any finds or by Chapter XIX) that it is only correct to wind-up the operations of the company;
6. If the company or its members have been involved in any fraudulent transactions, been getting financial gain through illegal transactions or the company has been earning profits through fraudulent means;
7. In any of the above cases, a tribunal is formed and a resolution is taken to wind-up the operations of the company under study. Such tribunal decisions are deemed final and after hearing the order, a Form 11 is issued for winding-up.


Procedure for Winding up by Court or Tribunal


1. The court or tribunal will set the procedure rolling by sending a notice to an official liquidator. This person will be in charge of the company and carry out the process of liquidation of company.

2. The court will also prepare the winding up order, which shall be served on all creditors and contributors, asking them to step forward. The order is to be served even upon those who’ve filed the petition for winding up.

3. The liquidator, appointed by central government, shal examine the books of the company, the cash in hand, bank balance, liabilities, creditors, loans, etc.

4. The official liquidator must, in the next six months, furnish to the court a preliminary report on the accounts, liabilities, debtors and cash and negotiable securities available. The liquidator will also state if an inquiry into the company is required.

5. If no inquiry is made, the liquidator must see to it that the available money is fairly divided between all creditors until exhausted. The liquidator will present to the Court a complete account of how the money, assets and operations were divided.

6. After inspection of the account, the court pronounces the dissolution of the company.

Selling the company is same as voluntary closing the company but the stakes are shifted to another individual. When the company is involved in some unlawful activities, then it is mandatory closed.When the company has to voluntarily closed, they need to follow certain compulsory procedure before closing down the company. A defunct company can be closed which needs to submit the STK-2 form in advance. The companies acts make it easier to wind up the company.