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 - Enterslice
  • Proper Method and Procedure is Followed by Winding up Process
  • There is no Legal Action on the Company
  • Very Less Cost is required in the process of liquidation
  • Creditors Protection
  • Any Form of Lease Agreements would be cancelled

  • 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.

Procedure- Winding up of a Company

The amendment in 2020 brought out by the Ministry of Corporate Affairs speaks about the rules related to winding up of companies. The latest regulation which would affect winding up of Companies is the Companies (Winding-Up) Rules, 2020 which have come into effect on 01 April 2020.

As per the new rules, all winding up proceedings related to private companies would be handled summarily and this will reduce the overall burden of the NCLT. The procedure for winding up a company must go in according to section 361 of the Companies Act, 2013.

Such procedures would only be utilised by companies that have assets with a book value which is lesser than 1 crore, then the central government would consider the process of winding up summarily.

A petition can be filed by the (i) Company; (ii) any contributory or contributories; (iii) the Registrar; (iv) any person authorized by the Central Government in that behalf; and (v) Central or State Government in case the Company has acted against the interests of the sovereignty and integrity of India, the security of the state, friendly relations with foreign states, public order.

The following has to be considered for winding up of a company utilizing the above method:

  • Any assets of respective book value do not exceed Rs. 1 Crore.
  • The conditions related to the latest balance sheet have to be considered for winding up:

    • If the firm or organisation has taken some form of deposits, and the total amount of deposits does not exceed Rs. 25 lakhs.

    • The organisation or company has specific amount of outstanding loans and the amount of outstanding loan does not exceed Rs. 50 lakhs.

    • The turnover of the company is about Rs 50 Crore.

    • The Paid up Share Capital of the Company does not exceed Rs. 1 Crore.

After this the Central Government would appoint the official liquidators for the process under the approval method of winding up. As per the 2020 rules related to winding up the following has to be carried out:

Any form of assets and properties would be sold by the official liquidator after obtaining the approval from the Central Government. Funds which are obtained by the official liquidator would be deposited into the account as maintained as per the requirements of the RBI. Such provisions are present under section 349 of the Companies Act.

Any form of claims which have to be provided has to be carried out by the official liquidator of the company. Such claims processes have to be carried out within 30 days. If there is some form of expiry of the time period for making the claims, then the list of creditors would be arranged as per the requirements of the Central Government.

Winding Up Order- As per the report submitted by the Official Liquidator, the Central Government will review the same and the winding up order is carried out as per the requirements.

Note: The Central Government has brought out such notification in order to implement the summary procedure under the 2020 rules. Such rules would reduce the burden which is considered or taken by companies which utilize the winding up procedures which is followed by the NCLT.

What Documents are required for Filing an Appeal for a Winding up of a Company Order?

The following documents are required for filing an appeal for a winding up of a company order:

  • Income Tax and Other Forms of Returns Filed by the Company
  • Form Comp 1- Information on Winding up Petition
  • Form Comp 2- Truth Declaration
  • Form Comp 3- Service Certificate
  • Winding Up Petition Announcement
  • Form Comp 4- List of Individual attending the hearing of winding up
  • Preparation of Preliminary Report by IP
  • Submission of Proof of Claim in Form B C D E, F, by post or by Electronic means.
  • PAN Card of the Company or Organisation
  • Declaration of the termination of the company’s bank account with NIL contracts.
  • Notarized Indemnity Bond by the Directors of the Company
  • Company Account Statements- Latest
  • Statement of reports related to all assets and liabilities of the company, audited by Chartered Accountant (CA)
  • Application for extracting the name of the company.
  • Indemnity Bond from all the Directors

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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.

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