Winding Up of the Company under the Companies Act, 2013
Abstract
“Winding up” means liquidation of the company which represents the last stage in the life of a company. Winding up means proceeding by which a company is dissolved. In other words, winding up is the second method of putting an end to the life of a company. According to Gower, winding up of a company is the process by which its life is ended and its property administered for the benefit of its creditors and members. A liquidator is appointed who takes control of the company, collects the assets of the company and pays its dues and also distributes the surplus, if any, among the members in accordance or in proportion to their interest.
- Introduction:
In fact, winding up comes into existence before dissolution of the company. A company cannot be immediately dissolved the moment winding up commences.
Winding Up of a Company means to bring an end to the life of the company. A distinct feature of a company is Perpetual Succession which means that the longevity of the company does not depend on its members or their financial status. Even if all the members of the company go bankrupt or all of them die, the company will not dissolve on its own unless it is made to dissolve on grounds which are laid out in the act. This article will go over how the operations of a Company are shut according to the provisions of the Companies Act.
- Types of Winding Up:
There are three types of winding up:
- Winding up under the order of the court.
- Voluntary winding up. This is of two kinds:
- Members voluntary winding up;
- Creditors voluntary winding up.
3) Winding up under the supervision of the Court.
- Winding up under the Order of the Court:
A company may be wound up under the order of the court. Such winding up of a company is called winding up under the order. It is also known as Compulsory winding up.
The cases or circumstances in which the company may be wound up under the order of the court are summarized as under:
- Special Resolution: If there is a special resolution with regard to winding up the company by court, the winding up of the company comes into existence.
- Failure to commence business: If there is a failure to commence the business within a period of one year from the date of incorporation of the company, in such event a company is wound up on this ground or suspends its business for a whole year.
- Default in holding statutory meetings: On the off chance that an organization has made a default in conveying the statutory report to the Registrar or in holding the statutory gathering, it might be requested to be Wound Up.
- Resolution in number of membership: If there is reduction in the number of membership than minimum required i.e. in the case of the Public company, if the reduction of numbers of members is below seven and in case of Private company if the reduction in number of members is below two, the company may be ordered to be wound up.
- Liability to debts: If a company is unable to pay its debts, such company may be ordered to be wound up. Inability to pay its debts, becomes a ground for an order by court to be wound up.
- Just and equitable: The court may order winding up of a company under just and equitable clause if the object for which the company has come into existence has substantially failed.
- Petition for winding up:
A petition for winding up of a company may be presented by-
- By the company (Section 272): Such petition may be filed, provided, a special resolution is passed.
- By any creditor: A creditor may file a petition for winding up of the company. A creditor includes a contingent or prospective creditor, secured creditor or holder of any debentures, assignee of debts but does not include creditor for unliquidated damages, that means unascertained damages.
- By a contributory: Contributory means, every person liable to contribute to the assets of the company in the event of its liquidation.
- By any person authorised by the Central government: A petition for winding up of the company may be filed by any person who is authorised by the Central Government.
Advertisement of Petition: A petition filed for winding up of the company must be advertised at least fourteen days before the hearing of the petition.
2) Voluntary Winding Up:
This is the second mode of winding up of a company. Voluntary winding up of the company means, winding up of the company by the members of the company or the creditors of the company without any interference of the court. The purpose of voluntary winding up of the company is to give a free hand to the members or creditors to settle their affairs without approaching the court.
A company may be wound up voluntarily as under:
- By passing an ordinary resolution
- By passing a special resolution
- Types of Voluntary Winding Up:
Voluntary winding up may be of two types-
- Members voluntary winding up
- Creditors voluntary winding up
- Members voluntary winding up:
If the declaration of the solvency of the company is made in accordance with the provision of section 305, it is called members voluntary winding up. Such declaration of solvency is made within 5 weeks immediately preceding the date of passing of the resolution of winding up the company and delivered to the registrar of the companies. Such declaration must be accompanied by a copy of the suitors of the company on the profit and loss account of the company. Sections 310, 313, 311, 312, 316, 318, 319 of the Act apply to a member’s voluntary winding up. The provisions of these sections are summarized as under:
i) Appointment of Liquidator: A company in the general meeting must appoint one or more liquidators for the purpose of winding up of the affairs and distributing the assets of the company.
ii) Board’s powers are ceased: On appointment of liquidator , the powers of the Board of Directors come to an end.
iii) vacancy to be filled up: If a vacancy is created due to the death, resignation of otherwise in the office of any liquidator appointed by the company, such vacancy is to be filled up.
iv) To call up a meeting of creditors: It is the duty of the liquidator to call a meeting of creditors in case of insolvency.
v) Final meeting and dissolution: The moment the affairs of the company fully wound up, the liquidator is required to make up an account of the winding up, he then will call a general meeting, law before the meeting the accounts. This is the final meeting. Within one week from the meeting, the liquidator shall submit the necessary papers to register the companies.
- Creditor’s Voluntary Winding up:
Section 306, 310, 311, 312, 313, 316, 318, and 319 of the Act apply to such Creditors Voluntary Winding Up. The provisions applicable to creditors voluntary winding up are summarized as follows:
i) Meeting of Creditors: A meeting of creditors is called in a general meeting where the resolution for winding up of the company is passed.
ii) The Board of Directors: A full report about the statement of the position of the company’s affairs shall be put up by the Board of Directors before the creditors meeting.
iii) Appointment of Liquidator: A liquidator will be nominated for the purpose of winding up of the affairs and distributing the assets of the company.
- Duties of Liquidator:
It is the duty of the liquidator to call a meeting of the company’s creditors every year within 3 months from the close of the liquidation year.
Final meeting and dissolution: The moment the affairs of the company are fully wound up, the liquidator is required to make up an account of the winding up. He then will call a meeting of the creditors of the company for the purpose of laying the account before such a meeting. He then submits the necessary papers and the procedure laid down in section 309 will be followed.
Dissolution of a company: The dissolution of company is affected in the following ways-
i) By order of the Court
ii) By special resolution of the shareholders.
iii) By striking the name of the company as a “defunct” company.
- Principle of Majority Rule:
The majority rule is the basis of company’s management. In other words, the management and administration of a company is based on the majority rule.
The company also has democratic set up and the working and functioning of the company is based on such democratic practice in which the majority plays an important role. The principle of majority also known as the rule in Foss V. Harbottle.
Foss V. Harbottle (1833) 2 Hase 461:
The Court dismissed the suit on the ground that the act of directors was confirmed by the company by the majority of its members.
- Exceptions to the Rule:
Exceptions are in accordance with natural justice and fair play-
- Where the act done is illegal or ultra-vires the company.
- Where the act can only be done by special resolution.
- Where the fraud is being committed by the majority.
- Where there is oppression of minorities or mismanagement of the affairs of the company.
- Where there is an infringement of individual rights.
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