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  • Meaning of Winding up of Company
  • Ways of Winding up of a Company
  • Who can be the petitioners for winding up of a company?
  • What is the distinction between dissolution and winding up of a company?

Process where the company is liquidated, its activities and business are brought to end in such a way that the company is dissolved and will not exist anymore, is winding up of company. Winding up as per section 2(94A) of the Companies Act, 2013, means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016. The assets of the company are liquidated, and the amount is applied to pay off the debts of the company. If any balance is left after satisfying the debts, the members are paid back in the proportion of shares held by them. The assets of the company are reviewed for the benefits of the creditors and the members.

A person, called a liquidator is appointed, who takes the control of the company, reviews and collects the assets, pays off the debts and finally distributes the surplus if any to the members of the company. The company still possesses the legal entitlement between the period of winding up and dissolution and so it can be sued in tribunal of law.

Some unfavourable situations while running the business may lead the management to take the decision of winding up of the company. There can be different reasons for winding up of the company and accordingly there are four ways in which a private limited company can be closed:

Sell the Company

One way to voluntarily wind up the company is to sell off a Private Limited Company. Selling off a private limited company means selling majority of the shares of the company. This way of selling is mere transfer of stake holding to another person or entity leaving the rights and responsibilities vested with part of stake holding.

Compulsory Winding Up

Tribunal may wind up any company registered in India under the Companies Act, which is involved into any unlawful act, fraudulent act or even if it contributes any action in some fraudulent activities. This is called compulsory winding up of company.

Compulsory winding up involves the following steps:

Step 1: Filing a Petition

The petition is filed in Form WIN 1 or WIN 2 and is submitted in triplicate. An affidavit in Form WIN 3 shall be attached along with. Any of the following can file the petition:

  • The Company or
  • The Trade Creditors of the Company or
  • Any Contributor to the company or
  • Any or all of the above three categories or
  • The Central or State Government or
  • By the Registrar of the Companies.

Step 2: Statement of Affairs of the Company

All the documents attached with the petition should be audited by a practising CA and an unqualified opinion must be given by the Auditor on the Financial Statement. The details of statement of affairs are filled in Form WIN 4 in duplicate, which shall be verified by an affidavit in Form WIN 5.

Step 3: Advertisement for at least 14 days

An advertisement of petition should be published in a daily journal at least for 14 days in the regional language (Regional Language of the area) and in English. Form 6 is used to carry out the advertisement.

Step 4: Proceedings of the Tribunal

A date is fixed for hearing on which the tribunal shall hear the petition, accept objections and replies from the petitioner and respondent. A provisional liquidator may be appointed by the tribunal. The order appointing provisional liquidator shall be made in Form WIN 8.

The liquidator of the company shall forward a copy of the order to the registrar within 30 days from date of the order.

If the accounts submitted to the tribunal are in order and all the required compliance have been satisfied, the tribunal would within a period of 60 days of receiving the application shall pass the order for dissolving the company. The registrar then issues a notice to the Official Gazette stating that the company is dissolved.

Voluntary Winding Up

Voluntary winding up of a company is a long process as it requires long procedural compliance to follow. To close down the company voluntarily, certain requirements are to be complied with mandatorily. Following are the steps to carry out voluntary winding up of the company:

Step 1: Passing a resolution in General Meeting

The company shall pass a resolution for voluntary winding up of the company

In the case where the company is formed for a particular duration, the company shall pass a resolution in its general meeting upon the expiry of the duration for which it is formed. The company shall pass a special resolution (with approval of at least 3/4th of the shareholders) on occurrence of any event in respect of which the articles provide for its dissolution.

Step 2 Consent of creditors

Trade Creditors of the company shall give their approval that they don’t have any obligation if the company opts for voluntary winding up.

Step 3 Declaration of Solvency

The Company shall give a Declaration of Solvency and the same must be accepted by the trade creditors of the company. The Declaration of Solvency must have the Company’s credibility.

Step 4 Appointment of Liquidator

In same general meeting a Company liquidator should be appointed by the company Majority of creditors shall approve the appointment of the liquidator. The liquidator will carry out the winding-up proceedings and shall prepare a report of the liquidation of the assets, properties and payment to debts and so on. The report shall be approved in the general meeting of the company and a resolution for dissolution of the company should be passed. Copy of final accounts of the company and resolutions are then sent to the ROC by the liquidator.

Step 5 Order of the Tribunal

The Company liquidator then shall make an application to the Tribunal requesting an order of dissolution of the company. The Tribunal shall pass an order of dissolution within 60 days of the application if it is satisfied with the winding up. A copy of the final order received from the tribunal should be filed with the ROC.

The above procedures and documents are to be presented and filed in the prescribed forms only. For 2 years from the winding up of the company, no application can be made to take the company’s name.

Winding Up of Defunct Company

A defunct or a dormant company is a company which

  • Does not have any asset and liability, and
  • Which has not carried out any business activity after its incorporation or
  • Has not carried out any business activities since last one year before making an application under FTE (Fast Track Exit Scheme).

Such a company can wound up in accordance with the procedures laid down in Companies Act, 2013. A fast-track procedure is laid down for defunct companies requires submission of the STK-2 form. There is no additional procedure for that. Registrar of Companies is required to fill Form STK-2 and the same is duly signed by the director of the company authorized by its board to do so.

A winding up petition can be filed by
  • The Company or
  • The Trade Creditors of the Company or
  • Any Contributor to the company or
  • Any or all of the above three categories or
  • The Central or State Government or
  • By the Registrar of the Companies.
in case where in the investigation it is found that the company is involved in fraudulent activities.
Though both the terms are often used interchangeably in case of companies, both have different meanings. When the company is in the process of terminating its business process while still having the legal entitlement and can operate like other companies, it is called winding up. Whereas, dissolution means when the company’s existence comes to an end and its name is strike off from the registry of companies.

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