Winding Up of Company
Winding up a company in India involves closing down the operations of a company and liquidating its assets to settle its debts and liabilities. The process is governed by the Companies Act, 2013, and can be done voluntarily by the company itself or compulsorily by a tribunal.
Winding up a company is a formal legal process that requires careful planning and adherence to statutory requirements. If the company is solvent, a voluntary winding up is typically quicker and simpler. However, if the company is insolvent or there are disputes, the winding-up process through the tribunal may be necessary.
Types of Winding Up:
Voluntary Winding Up:
Members’ Voluntary Winding Up: Initiated by the shareholders when the company is solvent.
Creditors’ Voluntary Winding Up: Initiated by the shareholders, but the company is unable to pay its debts, so creditors are involved in the process.
Compulsory Winding Up:
Initiated by a tribunal (National Company Law Tribunal, NCLT) under specific circumstances, such as the company’s inability to pay debts, or it being just and equitable to wind up the company.
Voluntary Winding Up Process (Under the Insolvency and Bankruptcy Code, 2016)
- Board Meeting and Declaration of Solvency:
Board Resolution: The board of directors must pass a resolution to wind up the company.
Declaration of Solvency: The directors must make a declaration of solvency that the company can pay its debts within three years from the commencement of winding up. This declaration is accompanied by a statement of the company’s assets and liabilities.
- Shareholders’ Approval:
Special Resolution: An Extraordinary General Meeting (EGM) is convened to pass a special resolution approving the voluntary winding up. The resolution must be passed by at least 3/4th of the shareholders.
Filing with ROC: File the resolution with the Registrar of Companies (ROC) in Form MGT-14 within 30 days.
- Appointment of Liquidator:
The company appoints a liquidator to carry out the winding-up process. The liquidator takes charge of liquidating the company’s assets and distributing the proceeds.
Notice to Creditors: The liquidator issues a public notice inviting claims from creditors.
- Settlement of Claims:
The liquidator assesses and settles all claims made by the creditors.
Distribution of Assets: After settling the debts, the remaining assets are distributed among the shareholders.
- Final Report by Liquidator:
Once all assets have been liquidated and debts settled, the liquidator prepares a final report.
General Meeting: A final meeting is called to approve the liquidator’s report. A resolution for the dissolution of the company is passed.
- Filing with ROC:
The liquidator files the final accounts and report with the ROC in Form GNL-2, along with an application for the dissolution of the company.
- Company Dissolution:
After reviewing the documents, the ROC issues a notice declaring that the company is dissolved.
Compulsory Winding Up (By Tribunal)
Grounds for Compulsory Winding Up:
Inability to Pay Debts: When a company is unable to pay its debts.
Just and Equitable: If the tribunal believes that it is just and equitable to wind up the company (e.g., deadlock in management).
Default in Filing Financial Statements/Annual Returns: Non-compliance with statutory requirements for a certain period.
Compulsory Winding Up Process:
Petition for Winding Up:
A petition is filed before the National Company Law Tribunal (NCLT) for winding up. The petition can be filed by creditors, shareholders, the company itself, or the Registrar of Companies.
Tribunal Hearing:
The NCLT will hear the petition and, if satisfied with the grounds, will pass an order for winding up.
Appointment of Liquidator:
The NCLT appoints a liquidator, usually from the Insolvency and Bankruptcy Board of India (IBBI).
Liquidator’s Duties:
The liquidator takes charge of the company’s assets, settles debts, and distributes the remaining assets to the shareholders.
Dissolution:
After the completion of the liquidation process, the liquidator submits a final report to the NCLT.
The NCLT then passes an order dissolving the company.
Key Documents Required:
Board resolution and shareholders’ special resolution.
Declaration of solvency (for voluntary winding up).
Statement of assets and liabilities.
Final report by the liquidator.
ROC forms (MGT-14, GNL-2, and others as applicable).
Timeframe:
The voluntary winding-up process may take between 6 months to a year, depending on the complexity of the company’s finances. Compulsory winding up can take longer, often extending to a few years, depending on the court process and settlement of claims.
Consequences of Winding Up:
Cessation of Business: The company must cease its business activities except for what is necessary for the winding-up process.
Discharge of Employees: The employees of the company are generally terminated as part of the winding-up process.
Company Dissolution: After the final dissolution, the company ceases to exist as a legal entity, and its name is removed from the register of companies.