Winding Up of a Company

Winding Up of a Company

Winding up of a company is governed by the provisions of the Companies Act, 2013. There are two modes of winding up of a company. One mode is considered as voluntary winding up and the other mode is known as winding up by the creditors. The Companies (Winding-Up) Rules, 2020 governs the procedures related to winding private limited company.

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Winding Up of a Company

Winding up of a Company- An Overview

The provisions related to winding up of a company are governed by the Insolvency and Bankruptcy Code. Apart from this, winding up of a company is governed by the provisions of the Companies Act, 2013.

When a company opts for the process of winding up , either the company can go for the procedure of voluntary winding up or there is another procedure related to compulsory winding up. The Ministry of Corporate Affairs have brought out notifications in the year 2020 regarding the winding up of small companies.

Non-Compliance with the above provisions would lead to several criminal and civil liabilities.

Benefits of Winding Up of a Company

The following benefits are present for winding up of a company:

Benefits of Winding Up of a Company
  • Proper Method and Procedure is Followed by Winding up Process

    By following the above procedure related to winding up of a company, there would be compliance with the respective laws and acts.

  • There is no Legal Action on the Company

    Through this process, directors would have a chance to provide their own opinions and recommendations related to saving the company . If the recommendations are proper procedure would be followed, and the company and its directors can avoid any legal action from the tribunal or the court. Through this the company can change its focus on taking up business opportunities.

  • Very Less Cost is required in the process of liquidation

    The prices followed for the above process is not expensive.

  • Creditors Protection

    Creditors would be safeguarded if proper procedures are allowed to be utilised. Through this process of winding up of a company, proper procedures are followed. Creditors are ranked based on the method of priority which is utilised by a particular company or a business. Hence the statements which are provided by creditors in advance would be safeguarded. Their collective rights through such processes would be safeguarded.

  • Any form of Lease Agreements would be cancelled

    If there are any forms of lease agreements entered into by the company, then all such agreements and contracts would be cancelled as a result of the liquidation.

Types of Winding Up of a Company

There are two types of winding up of a Company

Types of Winding Up of a Company
  • Winding up by Way of Tribunal- Winding up by a creditor is when external members are involved in the process of winding up. Creditor’s voluntary winding up can be transformed into winding up by way of a tribunal u/s 270 and 271 of the CA 2013.
  • Voluntary Winding Up- This is considered when the company wants to carry out the process through resolution of the board and members. Voluntary winding is divided in to member’s voluntary winding up and creditor’s voluntary winding up.

Grounds for Winding up a Company

There are specific grounds for winding up a company:

  • If the tribunal thinks that the company is unable to pay debts. Inability to pay debts is construed in s 271(2) of the CA 2013.
  • If the company has taken a special resolution to wind up the affairs of the company.
  • If the company has acted against the sovereignty and integrity of India and goes against the state, friendly relations with foreign countries.
  • If the tribunal has considered to wind up the company because it is a sick company under chapter 19.
  • If the tribunal is of the opinion that the company has done something fraudulently or unlawful purpose for which the company. This clause can be activated by the registrar or any person who is going to complain regarding the affairs of the company.
  • If the company has regularly defrauded and faulted in filing the annual returns.
  • If the tribunal is of the opinion that it is just and equitable for the company to wind up.

Procedure- Winding up of a Company

  • Petition Filed for Winding up of a Company

    First interested individuals should file a petition for winding up of the company. The following can file the petition on behalf of the company:

    • Trade Creditors of the Company

    • The Company Itself

    • Any form of contributories of the company

    • Any of the three mentioned categories

    • Government Authority such as the Central Government or the State Government

    • Registrar of Companies

    The petition must be submitted in Form WIN 1 or WIN 2. Such petition must be submitted in Triplicate. An affidavit must be accompanied along with the petition in Form WIN 3.

  • Statement of Affairs of the Company

    As per rule 4 of the Companies (Winding Up) Rules, 2020, the statement of affairs of the company must be provided along with the petition. As per section 272(4) or section 274(1) the statement of affairs of the company must be submitted in the format of Form WIN 4. Such information must be up to date and not be more than 30 days old. The statement of affairs of the company must be made in duplicate form and must be accompanied with an affidavit. The affidavit of concurrence must be in Form WIN 5.

  • Advertisement

    The petition must be advertised for a period of 14 days before the date of hearing. Such advertisement must be in English and in a vernacular language. The paper must be circulated in the state or the Union territory where the company has the registered office. The format of advertisement should be Form WIN 6.

  • Appointment of Provisional Liquidator

    After the submission of the petition along with the official proof of the affidavit, then the tribunal will appoint a provisional liquidator. As per section 273(1)(c), the notice of appointment of the provisional liquidator would be made to the company. This must be done in Form WIN 7. The responsibilities which have to be carried out by the provisional liquidator would be mentioned in accordance to the requirements of the company. Such would be mentioned in Form WIN 8.

  • Send notice to the Provisional Liquidator

    As per section 277 (1), the registrar of companies would send a copy of the notice to the official liquidator. This would be sent in the format of Form WIN 9, through courier or registered speed post or any other electronic method. This must be sent within 7 days of the order.

  • Winding up Order

    The winding up order which is made would be sent to the company liquidator in the format of Form WIN 11. Such order must contain respective variations in the signed and sealed form. This must be sent within a period of 7 days to the company by the registrar. When it is sent by the registrar to the company it must be in Form WIN 12 and 13.

  • Custody of Property

    All the assets and documents would be taken by the company liquidator. The liquidator has the power to take custody of all the documents, actionable claims and books of the company. A report must be provided by the company liquidator to the tribunal within 60 days of the order.

  • Affairs of the company

    If the affairs of the company are wound up, then the company liquidator would make an application to the tribunal for the dissolution of the company. This would only be made if the company liquidator feels it just and reasonable for winding up a company. Once the order is passed for winding up a company, a copy of the order would be forwarded to the registrar. This must be carried out within 30 days of the order of winding up of a company.

  • Dissolving the Company

    If the tribunal finds out that the accounts are in order then it would pass an order for dissolution or dissolving the company. This has to occur within 60 days of receiving such application.

Winding up a Company through Voluntary Winding Up

The below procedure would provide winding up of a company thorough the voluntary method:

  • Passing of Resolution and Special Resolution

    First and foremost, the company must have a general meeting to pass the resolution. However, the company would have to check the memorandum of association and articles of association if such provision related to dissolution is present. After this is carried out then the company would have to arrange for a general meeting. A special resolution has to be passed by the members in the general meeting. A special resolution would require 75% or three forth of the majority of the members. After such resolutions are passed, the company would have to appoint a liquidator for carrying out the procedure for voluntary winding up. Majority of the creditors must provide their representation during voluntary winding up.

  • Declaration of Solvency

    In the next step, the company has to declare the solvency status. This would show information on finances available with the company. Such solvency status has to be shown to the trade creditors also.

  • Preparation of Winding Up Report

    The liquidator appointed would prepare a report related to winding of the company. Such report would have information on the assets, liabilities and other form of trade liabilities which are associated with the company. Such report must be placed before the general meeting of the company. Once this is approved the liquidator, will provide a copy of the accounts which are final to the ROC.

  • Application to Tribunal

    The company liquidator would also apply to the tribunal for dissolution of the company. If the tribunal finds out that the accounts are in order then it would pass an order for dissolution or dissolving the company. This has to occur within 60 days of receiving such application. Such information has to be filed with the ROC.

What Documents are required for Winding up a Company

The following documents are required for Winding up a Company:

  • Certificate of Incorporation of the company
  • Memorandum of association and Articles of Association of the company
  • Certificate related to the closure of bank account of the company
  • Copy of the Board Resolution
  • Copy of the resolution of the creditors stating that three-fourth of members have accepted
  • Statement of Accounts of the Company
  • Winding Up Petition Form WIN 1 or WIN 2
  • Statement of Affairs of the Company in the Format of Form WIN 4
  • Affidavit of Concurrence in Format of Form WIN 5
  • Advertisement in the Vernacular Newspaper Form WIN 6
  • Appointment of Provisional Liquidator in the Format WIN 7 and 8
  • Form STK-2 (Procedure for winding up a defunct or Dormant Company ( This would only be used for the fast track procedure which is carried out by the courts)

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Frequently Asked Questions

The summary procedure for winding up of a company is present in section 361 of the Companies Act, 2013. Such procedure is utilised to dispense winding up cases filed by the company as soon as possible.

The summary procedure for winding up of a company is the same process, however, the summary procedure would dispense with cases quickly when compared to the NCLT procedure.

The term winding up of a company is when the business of a company comes to an end. All the assets and properties of the business is sold out to pay out all the creditors and other stakeholders.

If a company is liquidated due to bankruptcy, then all the assets would be sold in order to settle all the debts and liabilities.

There are two types of winding up: Compulsory Winding up and Voluntary Winding Up.

Yes compulsory winding up can be executed by a tribunal or a court.

Yes a resolution for winding up of a company can be passed. Such resolution has to be a special resolution passed by the company.

Creditors winding up or statutory winding up of a company is carried out with the involvement of the court. Voluntary winding can be considered by the company if the resolutions related to the company are passed. More than three-fourth of the creditors consent is required during this process of winding up. When compared both methods have their advantages and disadvantages.

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