Winding up a company

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Winding Up a Registered Company and an Unregistered Company

Winding up of a company is defined as a process by which the life of a company is brought to an end and its property administered for the benefit of its members and creditors. An administrator, called the liquidator, is appointed and he takes control of the company, collects its assets, pays debts and finally distributes any surplus among the members in accordance with their rights. At the end of winding up, the company will have no assets or liabilities. When the affairs of a company are completely wound up, the dissolution of the company takes place. On dissolution, the company's name is struck off the register of the companies and its legal personality as a corporation comes to an end.

The procedure for winding up differs depending upon whether the company is registered or unregistered. A company formed by registration under the Companies Act, 1956 is known as a registered company. It also includes an existing company, which had been formed and registered under any of the earlier Companies Acts.

Procedures for Winding up a Registered Company

The Companies Act provides for two modes of winding up a registered company. Grounds for Compulsory Winding Up or Winding up by the Tribunal

If the company has, by a Special Resolution, resolved that the company be wound up by the Tribunal. If default is made in delivering the statutory report to the Registrar or in holding the statutory meeting. A petition on this ground may be filed by the Registrar or a contributory before the expiry of 14 days after the last day on which the meeting ought to have been held. The Tribunal may instead of winding up, order the holding of statutory meeting or the delivery of statutory report. If the company fails to commence its business within one year of its incorporation, or suspends its business for a whole year. The winding up on this ground is ordered only if there is no intention to carry on the business and the Tribunal's power in this situation is discretionary. If the number of members is reduced below the statutory minimum i.e. below seven in case of a public company and two in the case of a private company. If the company is unable to pay its debts. If the tribunal is of the opinion that it is just and equitable that the company should be wound up. Tribunal may inquire into the revival and rehabilitation of sick units. It its revival is unlikely, the tribunal can order its winding up. If the company has made a default in filing with the Registrar its balance sheet and profit and loss account or annual return for any five consecutive financial years If 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, decency or morality. The petition for winding up to the Tribunal may be made by :-

The company, in case of passing a special resolution for winding up. A creditor, in case of a company's inability to pay debts. A contributory or contributories, in case of a failure to hold a statutory meeting or to file a statutory report or in case of reduction of members below the statutory minimum. The Registrar, on any ground provided prior approval of the Central Government has been obtained. A person authorised by the Central Government, in case of investigation into the business of the company where it appears from the report of the inspector that the affairs of the company have been conducted with intent to defraud its creditors, members or any other person. The Central or State Government, if the company has acted against the sovereignty, integrity or security of India or against public order, decency, morality, etc.



Voluntary Winding Up of a Registered Company

When a company is wound up by the members or the creditors without the intervention of Tribunal, it is called as voluntary winding up. It may take place by:-

By passing an ordinary resolution in the general meeting if :- (i) the period fixed for the duration of the company by the articles has expired; or (ii) some event on the happening of which company is to be dissolved, has happened. By passing a special resolution to wind up voluntarily for any reason whatsoever. Within 14 days of passing the resolution, whether ordinary or special, it must be advertised in the Official Gazette and also in some important newspaper circulating in the district of the registered office of the company.

The Companies Act (Section 484) provides for two methods for voluntary winding up:-

Members' voluntary winding up It is possible in the case of solvent companies which are capable of paying their liabilities in full. There are two conditions for such winding up:-

A declaration of solvency must be made by a majority of directors, or all of them if they are two in number. It will state that the company will be able to pay its debts in full in a specified period not exceeding three years from commencement of winding up. It shall be made five weeks preceding the date of resolution for winding up and filed with the Registrar. It shall be accompanied by a copy of the report of auditors on Profit & Loss Account and Balance Sheet, and also a statement of assets and liabilities upto the latest practicable date; and Shareholders must pass an ordinary or special resolution for winding up of the company. The provisions applicable to members' voluntary winding up are as follows:- Appointment of liquidator and fixation of his remuneration by the General Meeting. Cessation of Board's power on appointment of liquidator except so far as may have been sanctioned by the General Meeting, or the liquidator. Filling up of vacancy caused by death, resignation or otherwise in the office of liquidator by the general meeting subject to an arrangement with the creditors. Sending the notice of appointment of liquidator to the Registrar. Power of liquidator to accept shares or like interest as a consideration for the sale of business of the company provided special resolution has been passed to this effect. Duty of liquidator to call creditors' meeting in case of insolvency of the company and place a statement of assets and liabilities before them. Liquidator's duty to convene a General Meeting at the end of each year. Liquidator's duty to make an account of winding up and lay the same before the final meeting. Creditor's voluntary winding up It is possible in the case of insolvent companies. It requires the holding of meetings of creditors besides those of the members right from the beginning of the process of voluntary winding up. It is the creditors who get the right to appoint liquidator and hence, the winding up proceedings are dominated by the creditors.

The provisions applicable to creditors' voluntary winding up are as follows:- The Board of Directors shall convene a meeting of creditors on the same day or the next day after the meeting at which winding up resolution is to be proposed. Notice of meeting shall be sent by post to the creditors simultaneously while sending notice to members. It shall also be advertised in the Official Gazette and also in two newspapers circulating in the place of registered office. A statement of position of the company and a list of creditors along with list of their claims shall be placed before the meeting of creditors. A copy of resolution passed at creditors' meeting shall be filed with Registrar within 30 days of its passing.


It shall be done at respective meetings of members and creditors. In case of difference, the nominee of creditors shall be the liquidator. A five-member Committee of Inspection is appointed by creditors to supervise the work of liquidator. Fixation of remuneration of liquidator by creditors or committee of inspection. Cessation of board's powers on appointment of liquidator. As soon as the affairs of the company are wound up, the liquidator shall call a final meeting of the company as well as that of the creditors through an advertisement in local newspapers as well as in the Official Gazette at least one month before the meeting and place the accounts before it. Within one week of meeting, liquidator shall send to Registrar a copy of accounts and a return of resolutions.

Procedures for Winding up an Unregistered Company

According to the Companies Act, an unregistered company includes any partnership, association, or company consisting of more than seven persons at the time when petition for winding up is presented. But it will not cover the following:-

A railway company incorporated by an Act of Parliament or other Indian law or any Act of the British Parliament; A company registered under the Companies Act, 1956; A company registered under any previous company laws. An illegal association formed against the provisions of the Act. However, a foreign company carrying on business in India can be wound up as an unregistered company even if it has been dissolved or has ceased to exist under the laws of the country of its incorporation.

The provisions relating to winding up of a unregistered company:-

Such a company can be wound up by the Tribunal but never voluntarily. Circumstances in which unregistered company may be wound up are as follows:-


If the company has been dissolved or has ceased to carry on business or is carrying on business only for the purpose of winding up its affairs. If the company is unable to pay its debts. If the Tribunal regards it as just and equitable to wind up the company.


Contributory means a person who is liable to contribute to the assets of a company in the event of its being wound up. Every person shall be considered a contributory if he is liable to pay any of the following amounts:-


Any debt or liability of the company; Any sum for adjustment of rights of members among themselves; Any cost, charges and expenses of winding up;


On the making of winding up order, any legal proceeding can be filed only with the leave of the Tribunal.

Defunct firms : "simplified exit scheme" floated for the de-registration of defunct companies

First list of Defunct firms Deregistration in Jan.,2004


After the "simplified exit scheme" floated for the de-registration of defunct companies ends on December 31, office of the Registrar of Companies (RoC), Maharashtra, would be preparing a list of those companies that haven't availed of the scheme and have also not submitted their balance sheets or annual returns for the past ten years.

The list would be put up before the Department of Company Affairs (DCA) for possible de-registration of these firms.

This was revealed by the RoC, Maharashtra, Vijayan Menon... Menon said that since its introduction only 650 companies had availed of the scheme.


"Once the scheme ends we will tackle the issue of those companies which have gone defunct but have not been included in the plan. As a result our office will look into the case of every such company which has ceased activities and not submitted returns. There is no point in continuing to have such organisations registered," said Menon.


Only those firms which have no assets and no liabilities are eligible for the exit scheme. But there would be several companies which are defunct and yet have a certain amount of unpaid liabilities, he said.


The liabilities have to be cleared before the name is struck-off. So all such aspects about pending liabilities would be considered and methods evolved for de-registration, he added.


nov /26/2003

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