Companies (Winding Up) Rules, 2020 (the “Rules”) have been made public by the Ministry of Corporate Affairs (the “MCA”) in a notification dated January 24, 2020. The Corporations Act of 2013’s “Summary Procedure for Liquidation u/s 361” and “Winding Up for the Circumstances u/s 271” both apply to companies entering these processes. The Rules will be in effect starting on April 1, 2020, and they consist of 191 rules and 95 forms. The process of ending a business by realizing its assets and distributing the proceeds toward debt repayment is known as winding up. For the advantage of the creditors as well as the members, the company’s assets are managed. In accordance with Section 272 of the Companies Act of 2013, a company may be dissolved by the tribunal. NCLT and NCLAT were established in accordance with the Companies (Amendment) Act of 2002.
Introduction
A company’s assets are gathered and sold in order to settle its obligations during the winding up or liquidation process. After the winding up process is finished, the firm is formally dissolved and no longer exists.
The company’s existence ends during the liquidation/winding-up process, and its property and assets are distributed to its creditors and shareholders. An administrator, also known as a liquidator, has been selected. He aids in the dissolution of the company by assuming control of it in order to pay off all of its debts before distributing any remaining funds to the members in accordance with the rights outlined in the act.
Companies (Winding Up) Rules, 2020
In accordance with a circular that outlines the company’s winding-up procedure, the Ministry of Corporate Affairs has issued notification. The Companies (Winding Up) Rules, 2020 (the “Rules”) were in effect when the notice was given on January 24, 2020. Any company that is being wound up in accordance with Section 271 of the Act is subject to those rules. Additionally, this applies to businesses that are undergoing the “Summary procedure for liquidation” described in Section 361 of the Act. The regulations, which cover the winding up of the firm under the 2020 Companies Act, are set to take effect on April 1, 2020, and they are comprised of Rules 1 to 191 under Forms WIN1 to WIN 95. Beginning on April 1, 2020, the 191 regulations and 95 forms that make up the Rules will also be relevant.
Another benefit offered by the Central Government is that businesses intending to go through the winding-up procedure can submit an application directly to the Central Government without first visiting the National Company Law Tribunal.
The MCA has developed policies for the closing of small businesses under the Companies Act 2013 without having to go before a tribunal for key activities of the closing of the business enterprise under the rules of 2020. The following are included in the definition of a small business for the purposes of Clause (ii) of Subsection (1) of Phase 361:
- A deposit has been taken by the employer, and most deposits aren’t worth more than 25 lakhs.
- A business with a significant loan balance of $50,000 or less must also have a secured loan.
- A company with a turnover of up to $50 billion.
- An organization with at least one crore in paid-up capital.
- A firm with up to Rs. 1 crore in paid-up capital.
Companies (Wind-Up) Regulations – A clause in the Companies Act provides an alternative to the regularly utilized liquidation method under India’s bankruptcy code, and the Ministry of Corporate Affairs has announced regulations for winding up small enterprises without having to appear before a tribunal (NCLT).
Tribunal-directed closure
Petition for winding up (Rule 3)
- According to Section 272(1) of the Companies Act of 2013, petitions for winding up must be submitted to the tribunal in triplicate and on Form WIN 1 or Form WIN 2.
- The petitioner must provide an affidavit in WIN 3 format.
Statement of affairs (Rule 4)
- According to Section 272(4) of the Companies Act of 2013, the statements of affairs must be filed in Form WIN 4 and submitted within 30 days of submitting the petition.
- A statement of affairs affidavit must be in form WIN 5.
Petition’s advertisement (Rule 7)
Within fourteen days of the hearing date, the petition must be posted using the WIN 6 form. Both an English newspaper and a local language must publish the advertisement.
Petitioner’s request for permission to withdraw (Rule 8)
- A petition for winding up cannot be retracted without the Tribunal’s approval.
- Before the date set in the advertising for hearing the petition, an application for permission to withdraw a petition cannot be heard.
Liquidator
Naming a temporary liquidator or company liquidator (Rule 14)
- For the purpose of hearing the winding up petition, a provisional liquidator is chosen in accordance with Section 273(1) of the Companies Act, 2013.
- An appointment of provisional liquid notification in the form WIN 7 must be given to the corporation in cases where it is not the applicant.
- Anyone in possession of items such as cash, documents, books, or other benefits must turn them over to the temporary liquidator.
- In the event that a provisional liquidator or company liquidator is to be appointed, the registrar shall give seven days’ notice in writing via postal mail or other feasible method to the company liquidator or provisional liquidator. Furthermore, it must transmit a copy of the appointment as well as copies of the petition and affidavit to the registrar of companies.
- The Company liquidator or the Provisional Liquidator may make a declaration in form WIN 10 within seven days of appointment disclosing any potential conflicts of interest or lack of independence.
The Official Liquidator’s Authority
The official liquidator will assume custody of all the assets and properties after being appointed. Additionally, he will be accountable for all money owed to and by the company. with the intention of carrying out the sale of the company’s properties and assets. The central government must authorize the appointment of any agents or auctioneers that the official liquidator appoints.
Official Liquidator’s Responsibilities
The official liquidator has a responsibility to look into all company matters and submit a report to the Central Government in the manner specified by the established rules. It must disclose all of the company’s information, and if any fraud was carried out during the process of the company’s establishment, promotion, or management of its affairs, it must be reported to the central government. If fraud has not been perpetrated by the company or any of its members, this information should also be conveyed to the central government. If the central government is pleased with the report in the case of fraud, they may then request additional inquiry within the allotted time limit.
Winding up Order
The form of the order and the order to be issued to the liquidator (Rule 17)
- The winding up order must be forwarded to the registrar within seven days of being signed and sealed. It must be sent in form WIN 11, as well as to the company liquidator and the registrar of companies in forms WIN 12 and WIN 13. A copy of the petition and affidavit must also be included.
- In accordance with the 2014 Companies (Incorporation) Rules, form INC-28, the liquidator must submit the Tribunal’s order to the registrar of companies within thirty days.
Company assets, records, and books will be handled by the company’s liquidator (Rule 22)
- The corporate liquidator must collect the books, actionable claims, and files from the company that was previously in charge of them when a winding up order is issued.
- The liquidator may ask the tribunal for an order if the company, promoters, key managerial people, or anybody else refuses to work with them.
- Upon receiving such an order, the tribunal shall direct the company, its promoters, and its key managerial staff to give the liquidator with the needed information or assist him in gathering it.
Application for a Stay of Proceedings Regarding a Winding up Order (Rule 24)
- Application for Leave to Begin or Continue a Lawsuit or Other Procedural Action
- The form WIN 15 must be used to submit an application to the tribunal to start or continue legal action against the firm.
Companies (Winding-Up) Guidelines, 2020 rules also stipulate how to submit a petition by the following:
- Company
- Any supportive
- By the Registrar
- Whomever the Central Government has approved to submit a petition on their behalf
- If a firm has violated a country’s integrity, security, foreign relations, public order, morality, or decency, the Central or State Government may take action, although they are not limited to the following listed below:
- Court-ordered firm dissolution
- Whenever a Provisional Liquidator is appointed.
- Whenever the official or company liquidator is appointed
- Order of Closing
- Any request for a delay of court proceedings
- Any report provided by the corporate liquidator pursuant to Section 281
- A list of the contributors who have received payments
- Whatever Advisory Committee
- Meetings between contributors and creditors
- Any representatives at the creditors’ and contributors’ meetings
- When the Company Liquidators are required to keep records of books and accounts.
- A Company Liquidator’s Account
- Investment of any extra money
- Company liquidator’s audit
- The tribunal’s distribution of assets at the moment of winding up
- Check the members and directors.
- Summons against anyone believed to possess business property
- Any complaint made against the company’s officials, promoters, members, or directors
- Compromised claim of any kind
- Selling of property or assets by the company liquidator
- Amount of dividend and capital returns during the tribunal’s winding-up
- When things are over, get fired
- When any unclaimed dividend payment has been made or any summary procedure has been completed.
Illustration
For the purpose of conducting their business of producing refrigerators, a partnership firm called “IN” receives monthly shipments of raw materials from a company called “CD.” After successfully supplying raw materials to “IN” for 7 months, “IN” fails to pay the existing debts and the money owed on the “CD,” with interest added on top of that sum, which comes to Rs. 2,87,000/-.
A sole proprietorship claims that “PB” rented his truck to “LM” for the purpose of loading and transporting the company’s goods, but after some time passed and despite numerous requests, “PB” failed to do so. He then owes a debt of Rs. 3, 98,000/- plus interest.
In both situations, it is advisable that CD and PB start the winding-up procedure so that the creditors can collect the money that is owed to them.
Various professional opinions on the Ministry of Corporate Affairs’ Companies (winding up) 2020
According to Harish Kumar, a partner at L&L Partners, the recommended summary procedures will speed up the process and enable the quick resolution of issues relating to liquidation and eventual winding up.
According to Akila Agarawal, a partner and head of M&A at Cyril Amarchand Mangaldas & Co, winding up procedures have been pending on the ground outside of the incapacity to pay obligations for a very long period. The Companies (winding up) Rules, 2020, have been implemented, which lessens the strain on NCLT since the procedure for liquidation can now be submitted with the national government.
The short procedure for liquidation introduced under Part V of the winding up Rules is the standout element of the new rules, according to Atul Pandey, a Partner at Khaitan and Co. The overall windings up timescales are shortened by seeking central government approval for company winding up rather than NCLT.
Conclusion
The Companies (Winding Up) Rules, 2020 essentially provide a number of options for winding up a company, including by tribunal, liquidators, winding up by order, or any application for a stay of litigation on the basis of a winding up order. Additionally, there are provisions to the report provided by the Company Liquidator under Section 281.
There are many services offered during winding up, including the settlement of the contributors’ list, the Advisory Committee, and the meetings of creditors, contributors, and their proxies, which are all included in the process.
Then the Company Liquidator’s Account must be filed and audited, Investment of Surplus Funds, Winding Up by Tribunal Debts and Claims against the Company Other Than Summary Winding Up, Attendance and Appearance of Creditors and Contributors, Collection and Distribution of Assets, Calls in Winding Up by the Tribunal, Examination under Section 299 and 300, Application Against the Direct Liquidation
Firms (Winding up) rules 2020, which were released by the Ministry of Corporate Affairs on January 24, 2020, have significantly altered the procedure for winding up companies. They have also lessened the burden on the tribunal and given classes of companies’ chances to escape the process. Tribunals should only declare a firm to be wound up after all other options has failed; in the absence of such a finding, they should encourage the corporations to make changes to or reinstate their businesses.
The Companies (Winding Up) Rules, 2020 provide more detail on the process by which a corporation may be wound up during the Covid-19 period.
References
https://taxguru.in/company-law/summary-companies-winding-up-rules-2020.html
Companies (Winding Up) Rules, 2020 and its impact on the National Company Law Tribunal
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