WINDING UP OF COMPANY

WINDING UP OF COMPANY

Meaning of Winding up: Winding up is a means by which the dissolution of a company is brought about and its assets are realised 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. 

Modes of Winding Up of a Company: 

• Compulsory Winding Up of a Company: 
  • Winding up a company by an order of the Tribunal is known as compulsory winding up.
  • A petition for compulsory winding up of a company may be filed in the Tribunal by any of the following persons. (Sec. 272) 

1. 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. 
2. 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 
3. 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:
   1. 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;
   2. 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;
   3. If on an application made by the Registrar or any other person authorised 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 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.
4. 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.
5. Any person authorised by the Central Government in that behalf.

• Liquidation under Insolvency and Bankruptcy Code 2016:
  • The Insolvency and Bankruptcy Code, 2016 relates to re-organisation 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 Crore (limit increased from Rs.1 lakh to Rs. 1 crore w.e.f 28.03.2020). 
• The Code lays down two stages:
  • 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-organisation and re-structuring are suggested; and
  • 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.