Winding Up of A Company

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  • Last Updated on 14 July, 2021

1. Meaning of winding Up: 

“Winding up is a means by which the dissolution of a company is brought about and its assets are realized and applied in the payment of its debts. After satisfaction of the debts, the remaining balance, if any, is paid back to the members in proportion to the contribution made by them to the capital of the company.”
1. “The liquidation or winding up of a company is the process whereby its life is ended and its property is administered for the benefit of its creditors and members. An Administrator, called a liquidator, is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.”
 
2. As per Section 2(94A) of the Companies Act, 2013, “winding up” means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016. 
 
Thus, winding up ultimately leads to the dissolution of the company. In between winding up and dissolution, the legal entity of the company remains and it can be sued in a Tribunal of law.

2. Meaning of Dissolution of a Company: 

A company is said to be dissolved when it ceases to exist as a corporate entity. On dissolution, the company’s name shall be struck off by the Registrar from the Register of Companies and he shall also get this fact published in the Official Gazette. The dissolution thus puts an end to the existence of the company.

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3. Difference between Dissolution & Winding Up of a company. 

S. No.

Winding Up

Dissolution

1.

Winding up is one of the methods by which the dissolution of a company is brought about.

Dissolution is the end result of winding up.

2.

The legal entity of the company continues at the commencement of the winding-up.

Dissolution brings about an end to the legal entity of the company

3.

A company may be allowed to continue its business as far it is necessary for the beneficial winding up of the company

The company ceases to exist on its dissolution.

4. Modes of Winding Up of a Company: 

A company may be wound up in any of the following two ways: 

4.1. Compulsory winding up of a company: 

Winding up a company by an order of the Tribunal is known as compulsory winding up.

Who may file a Petition to the Tribunal?

A petition for compulsory winding up of a company may be filed in the Tribunal by any of the following persons. (Sec. 272) 

i. Petition by the Company – A company can file a petition to the Tribunal for its winding up when the members of the company have resolved by passing a Special Resolution to wind up the affairs of the company. Managing Director or the directors cannot file such a petition on their own account unless they do it on behalf of the company and with the proper authority of the members in the General Meeting.
 
ii. Petition by the Contributories – A contributory shall be entitled to present a petition for the winding up of the company, notwithstanding that he may be the holder of fully paid-up shares or that the company may have no assets at all, or may have no surplus assets left for distribution among the holders after the satisfaction of its liabilities. It is no more required of a contributory making petition to have tangible interest in the assets of the company
 
iii. Petition by the Registrar – Registrar may with the previous sanction of the Central Government make petition to the Tribunal for the winding up the company only in the following cases: 
     (a) If the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years; 
 
     (b) 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; 
 
     (c) If on an application made by the Registrar or any other person authorized by the Central Government by notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company was formed for a fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound up. 
iv. Petition by the Central Government or a State Government on the ground that 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. 
 
v. Any person authorized by the Central Government in that behalf.
 

4.2. Liquidation under Insolvency and Bankruptcy Code 2016: 

The Insolvency and Bankruptcy Code, 2016 relates to re-organization and insolvency resolution of companies, partnership firms, and individuals in a time-bound manner. The Insolvency and Bankruptcy Code, 2016 applies to matters relating to the insolvency and liquidation of a company where the minimum amount of the default is Rs. 1 lakh (may be increased up to Rs.1 cr by the Government, by notification). 

The Code lays down two stages:

1. Insolvency Resolution Process

It is the stage during which financial creditors assess whether the debtor’s business is viable to continue and the options for its re-organization and re-structuring are suggested; and 

2. Liquidation

In case the insolvency resolution process fails, the liquidation process shall commence in which the assets of the company are realized to pay off the creditors.

5. Modes of Dissolution: 

Dissolution of a company may be brought about in any of the following ways:  1. Through transfer of a company’s undertaking to another under a scheme of reconstruction or amalgamation. In such a case, the transfer or company will be dissolved by an order of the Tribunal without being wound up.  2. Through the winding up of the company, wherein assets of the company are realized and applied towards the payment of its liabilities. The surplus, if any is distributed to the members of the company, in accordance with their rights.

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