1. Winding up of Company
Unit II

2. Winding up a Company
• Process of putting an end to the life of a
company
• It is a proceeding by means of which a
company is dissolved, its assets collected, its
debts paid off out of the assets or from
contribution from members if necessary.
• If any surplus is left, it is distributed among
the members in accordance with their rights

3. Modes of Winding up
3 modes
• Compulsory winding up
• Voluntary winding up
• Winding up under the supervision of the Court
(abolished by Companies (Amendment) Act,
2004)

4. Compulsory Winding Up
• Wound up by an order of the Court
• Grounds for winding up of a company
– Company by special resolution resolved to wind up
– Default in delivering the Statutory Report to the
Registrar or in holding the Statutory Meeting
– Does not commence its business within a year from its
incorporation
– Number of members reduced below 7 in case of public
limited company and 2 in case of private
– National Company Law Tribunal may order if it is unable
to pay its debts

5. Compulsory Winding Up
• Grounds for winding up of a company
– NCLT may order when it is of the opinion that it is just
and equitable that the company should be wound up
(instances)
– Dead lock in management
– Impossible to carry on business except at a loss
– Company engaged in illegal business
– Objective of company is impossible to carry on
– Minority is disregarded or oppressed
– Lack of confidence in directors
– Company has been conceived and brought forth in fraud

6. Persons eligible to file petition for
winding up
• The Company
• Any creditor or creditors
• Any Contributor or contributories
• All or any of the aforesaid parties, together or
separately
• The Registrar
• Any person authorized by Central Govt.

7. Official Liquidator
• Appointed by Central Government
• After a winding up order is received, a
statement as to the affairs of the company is
to be prepared and submitted to official
liquidator
– Assets of the company
– Debts and Liabilities
– Names and addresses of its creditors and amount
– Debts due to the company; names and addresses
of them from whom it is due

8. Duties of the Liquidator
• To submit preliminary report
• To take over company’s assets
• To convene meetings of creditors and
contributories
• To keep proper books
• To submit accounts
• To submit information in pending liquidation

9. Powers of Official Liquidator
• Powers to be exercised with sanction of NCLT
– To institute or defend suits, prosecution, etc on
behalf and in the name of the company
– To carry on business till it may be necessary for
beneficial winding up
– Sell immovable and movable property by public
auction or private contract
– To raise money on security of any asset
– To do all other acts as may be necessary to wind
up the company and to distribute assets

10. Powers of Official Liquidator
• Powers to be exercised without sanction of NCLT
– To use company seal for acts and execute in name of
company all deeds, documents , receipts, etc
– To inspect the records and returns of the company
on the files of the Registrar
– To prove, rank and claim the insolvency of any
contributory and to receive dividend out of his estate
– To draw, accept, make and endorse bill of exchange
on the name of the company
– To appoint agents where necessary

11. Voluntary Winding Up
• Company and its creditors are left to settle
their affairs without going to Court
• Most common and popular form of winding
up
• If period is fixed by Articles for the duration of
the company has expired
• If company passes a special resolution for any
cause

12. Voluntary Winding Up
• Types of Voluntary winding up
– Member’s voluntary winding up and declaration
of solvency
• Directors at a meeting declare solvency that company
will pay in full within period not exceeding 3 years
– Creditor’s voluntary winding up
• If declaration of solvency is not made then winding up
is referred to as Creditor’s winding up
• Creditors appoint the liquidator, fix his remuneration
and conduct the winding up

13. Winding up subject to supervision of
Court
• Any time after a company has passed
resolution for voluntary winding up, the Court
may make an order that voluntary winding up
will continue, but subject to the supervision of
the court.
• The Court appoints Liquidator

14. Consequences of Winding up
• Consequences as to Shareholders (liable to
pay full amount upto the face-value of the
shares held by him)
• Consequences as to Creditors (Solvent
company : all claims when proved are met
fully; Insolvent company : Law of Insolvency
shall apply)

15. Order of Payment
1. Secured Creditors
2. Costs, Charges and expenses of winding up
including liquidators, remuneration
3. Preferential payments (revenues, taxes, cess
and rates due; wages & salaries; fund payable
for the welfare of the employees; expenses of
any investigation, etc)
4. Creditors secured by floating charge
5. Unsecured or ordinary creditors
6. Members

16. Dissolution of a Company
• Court makes an order for dissolution on the
following grounds
– When affairs of the company have been
completely wound up
– When Court is of the opinion that liquidator
cannot proceed with winding up for want of funds
or assets
– When it is just and reasonable in the
circumstances of the case
– For any reason whatsoever

17. Dissolution of a Company
• Company is dissolved from the date of the
order of the Court
• Within 30 days the Official Liquidator must
send a copy of the Court to the Registrar
(otherwise he will be penalized Rs.50 for every
day)