Winding up of a company
How the operations of a
company are wound up as per the guidelines laid out in the Companies Act, 2013.
Introduction
Winding Up of a Company means to bring an end to the
life of the company. A distinct feature of a company is Perpetual Succession
which means that the longevity of the company does not depend on its members or
their financial status. Even if all the members of the company go bankrupt or
all of them die, the company will not dissolve on its own unless it is made to
dissolve on grounds which are laid out in the act. This article will go over
how the operations of a Company are shut according to the provisions of the
Companies Act.
Types
of Winding Up
Winding
Up. They are:
1.
Compulsory
Winding Up under the order of the Court
2.
Voluntary
Winding Up, which itself is of two kinds:
i.
Members‟
Voluntary Winding Up
ii.
Creditor‟s
Voluntary Winding Up
Winding
Up by Court
A company may be wound up at an order of the Court. This
is also called Compulsory Winding Up. The cases in which a company may be wound
up are given in Section
433.They
are as follows:
Special
Resolution
In the event that the organization has, by unique goals,
settled that it be ended up by the court. The court is, be that as it may, not
bound to request Winding Up essentially in light of the fact that the
organization has so settled. The power is optional and may not be practised
where twisting up would be against the general population or the organization‟s
advantages.
Default
in Holding Statutory Meeting
On the off chance that an organization has made a
default in conveying the statutory report to the Registrar or in holding the
statutory gathering, it might be requested to be Wound Up.
Failure to Commence
Business or Suspension of Business
In the event that an organization does not initiate its
business within a year from its joining or has suspended its business for an
entire year, it might be requested to be twisted up. Here again, the power is
optional and will be practised just when there is a reasonable sign that there
is no aim to carry on business. In the event that the suspension is acceptably
represented and has all the earmarks of being because of brief causes, the
request might be declined.
Reduction
in Membership
On the off chance that the quantity of individuals is
decreased, on account of an open organization, underneath seven, and on account
of a privately owned business, beneath two, the organization might be requested
to be twisted up.
Inability
to Pay Debts
An organization might be requested to be twisted up on
the off chance that it is unfit to pay its obligations. Failure to pay
obligations is clarified in Section 434. As indicated by this area, an
organization will be esteemed to be unfit to pay its obligations in the
accompanying three cases:
1.
Statutory
Notice
2.
Decreed
Debt
3.
Commercial
Insolvency
Just
and equitable
The final ground on which the court can arrange the
ending up of an organization is the point at which “the court is of the
assessment that the organization ought to be twisted up.” This gives the court
a wide optional capacity to request twisting up at whatever point it seems, by
all accounts, to be attractive. The court may give due weight to the enthusiasm
of the organization, its representatives, loan bosses and investors and overall
population ought to likewise be considered. The
conditions wherein the courts have in the past broken down organizations on this
ground can be settled into general classifications as pursues:
Deadlock
Firstly, when there is a deadlock in the management of
the company, it is just and equitable to order winding up. The well-known
illustration is Yenidje Tobacco
Co Ltd. The facts of the case are laid out as follows:
W and R who exchanged independently as cigarette makers
consented to amalgamate their business and shaped a private limited
organization of which they were investors and the main chiefs. They had an
equivalent casting of ballot rights and, in this manner, the articles gave that
any contest would be settled by discretion, however, one of them disagreed from
the honour. Both at that point turned out to be hostile to the point that
neither of them would address the other aside from through the secretary.
Therefore there was a finished stop and thus the
organization was requested to be twisted up in spite of the fact that its
business was thriving. It must be noticed that the „Fair and Equitable‟
statement ought not to be conjured in situations where the main trouble is the
distinction of view between the greater part directorate and those speaking to
the minority.
Loss
of Substratum
Also, it is simply and evenhanded to wrap up an
organization when its fundamental article has neglected to appear or it has
lost its substratum. A decent delineation is German Date Coffee Co. The
realities of the case are spread out as pursues:
An organization was shaped to make espresso from dates
under a patent which was to be conceded by the Government of Germany and
furthermore for
working different licenses of comparable kind. The
German patent was never allowed and the organization set out upon different
licenses. Yet, on the request of an investor, it was held that “the substratum
of the organization had fizzled, and it was difficult to do the items for which
it was framed; and, subsequently, it was simple and fair that the organization
ought to be twisted up.
Losses
Thirdly, it is viewed as just and fair to wrap up an
organization when it can‟t carry on business with the exception of at
misfortunes. It will be unnecessary, in reality, for an organization to carry
on business when there is no desire for accomplishing the object of exchanging
at a benefit. Yet, simple anxiety with respect to certain investors that the
benefits of the organization will be squandered and that misfortune rather than
increase will result has been held to be no ground.
Oppression
of Minority
It is simple and even-handed to wrap up an organization
where the vital investors have embraced a forceful or onerous or pressing
approach towards the minority. The choice of the Madras High Court in R. Sabapathi Rao v Sabapathi Press Ltd, is
a representation in point. The court saw that where the executives
of an organization had the option to practice an overwhelming effect on the
administration of the organization and the overseeing chief had the option to
outvote the minority of the investors and hold the benefits of the business
between individuals from the family and there were a few objections that the
investors did not get a duplicate of the asset report, nor was the inspector‟s
report perused at the general gathering, profits were not consistently paid and
the rate was lessening, that established adequate ground for twisting up.
Fraudulent
Purpose
It is simple and fair to wrap up an organization on the
off chance that it has been imagined and delivered in misrepresentation or for
an illicit reason.
Incorporated
or Quasi Partnership
It has been seen that there is little in like manner
between the goliath organization and the family or the one individual
organization. To apply the equivalent legitimate prerequisites to such various
associations is profitable of bother and bad form. So as to maintain a
strategic distance from such “burden and unfairness” the Act treats them distinctively
in a few regards. In any case, even in issues in which the Act treats them
alike, the courts have needed to recognize them.
Voluntary
Winding Up
By
Ordinary Resolution
An organization might be twisted up willfully by passing
an ordinary resolution when the period, assuming any, fixed for the span of the
organization by the articles, has lapsed. Also, when the occasion, assuming
any, has happened, on the event of which the articles give that the
organization is to be broken down, the organization may, by passing a normal
goal with that impact, start its willful twisting up.
By
Special Resolution
A company may at any time
pass a special resolution providing that the company be wound up voluntarily.
Winding Up commences at the time when
the resolution is passed. Within fourteen days of the
passing of the resolution, the company shall give notice of the resolution by
advertisement in the Official Gazette and also in some newspaper circulating in
the district of the registered office of the company. The corporate state and
powers of the company shall continue until the company is dissolved, but it
shall stop its business, except so far as may be necessary for beneficial
winding up.
As
discussed earlier in the article, Voluntary Winding Up is of two kinds:
1.
Members‟
Voluntary Winding Up;
2.
Creditor‟s
Voluntary Winding Up
If a Declaration of Solvency is made in accordance with
the provisions of the Act, it will be a Members‟ Voluntary Winding Up and if it
is not made, it becomes the Creditors‟ Voluntary Winding Up. The declaration
has to be made by a majority of the directors at the meeting of the board and
verified by an affidavit. They have to declare that they have made a full
inquiry into the affairs of the company and have formed the opinion that the
company has no debts or that it will be able to pay its debts in full within a
certain period, not exceeding three years, from the commencement of winding up.
The declaration, to be effective, must be made within
the five weeks immediately before the date of the resolution and should be
delivered to the Registrar for registration before that date. It should also be
accompanied by a copy of the report of the auditors on the profit and loss
account and the balance sheet of the company prepared up to the date of the
declaration and should embody a statement of the company‟s assets and
liabilities as at that date.
There is a penalty for making the declarations without
having reasonable grounds for the opinion that the company will be able to pay
its debts within the specified period. If the company fails to pay the debts
within that period, it will be presumed that reasonable grounds for making the
declaration did not exist.
The liquidator should forthwith call a meeting of the
creditors because the winding up has then to proceed as if it were Creditors‟
Winding Up.
Final
Meeting and Dissolution
When the affairs of the company are fully wound up, the
liquidator makes an account of the winding up showing how the winding up has
been conducted and the property of the company disposed of. He then calls a
general meeting of the company for the purpose of laying before it the accounts
of winding up. The meeting is to be called by advertisement in the Official
Gazette and a local newspaper specifying the time, place and object of the
meeting. Within a week after the meeting, the liquidator sends a copy of the
accounts and a return of the meeting to the Registrar and the Official
Liquidator.
If no quorum was present at the meeting, he makes a
return stating the fact. The Registrar, on receipt of the accounts and the
return, registers the documents. The Official Liquidator, to whom also a copy
of the accounts and return is sent, is required to make a scrutiny of the books
and papers of the company. The liquidator of the company and it‟s past and
present officers are under a duty to give the Official Liquidator all
reasonable facility for the purpose.
The Official Liquidator reports to the Tribunal, the
result of his scrutiny. If the report shows that the affairs of the company
were not conducted in a manner prejudicial to the interest of its members or to
the public interest, then from the date of the submission of the report to the
Tribunal, the company shall be deemed to be dissolved. If the report reveals
that the affairs were conducted in a manner prejudicial to the interests of the
members or to the public interest, the court shall direct the Official
Liquidator to make further investigations into the affairs of the company. The
court may invest him with such powers as may be necessary for the purpose. When
the court receives the report on further investigation, it may declare that the company stands
dissolved or make such order as the circumstances discovered by the report may
warrant.
Conclusion
A company can be wound up for a lot of reasons but
Winding Up of a Company is not as simple as closing the shutters of its
headquarters or not turning up to work. Winding Up is an even more cumbersome
process than the Incorporation itself.
Sudha
1st B.Com. 2nd Batch
Comments
Post a Comment