18 July 2018 05:00PM
‘Winding up' is the procedure to dissolve the company. As we all know, one of the characteristics of a company is perpetual succession. A company can only cease to exist if it is wound up. The director is no longer involved in managing company's affairs. An administrator referred to as the "Liquidator" is hired, all of the control is given to him. He works for realizing company's assets and also for paying all the debts of the company. The surplus is distributed, if any, in accord with the rights of the members. Therefore, the company won't have any assets or liabilities and thus it is a formal step for dissolution of a company and bringing the legal personality of a company to an end. ‘Winding up' can be considered as a process of shutting down a company after its assets are realized, its liabilities are paid in full and any remaining surplus is distributed among members. Another term for winding up is ‘Liquidation'.
Insolvency of an individual or a partner is quite different from wound up of a company because a company can't be made insolvent under the law of insolvency. Solvency isn't considered while winding up of a company.
Dissolution of a company is different from winding up of a company. The procedure followed to close or finish a company is called winding up of a company. Whilst this procedure, the company has legal existence. It means that the legal entity status remains of the company before dissolution and after winding up. It can be sued in the court of law. The termination of the legal entity status of a company is known as ‘Dissolution'.
The company can't be sued after it's dissolution as it is no longer a legal entity. The registrar strikes of the name of the company from the register of companies on dissolution and it is published in the Official Gazette. Thus, the creation and termination of a company are by law through dissolution. Whereas, winding up leads to the dissolution of a company. Liquidator calls the final general meeting after all the affairs of the company are wound up fully and the procedure for dissolution starts.
Methods for Winding up
Winding up of companies in India is regulated under Chapter xx of the Companies Act, 2013. Section 270 of the same, lists down two methods for winding up of a company-
VoluntaryTribunal (National Company Law Tribunal)
The above-mentioned methods also extend to any special law as well, which states different provisions for wound up, then under Companies Act,2013, a company can be wound up by using the provisions mentioned under this act, also using the methods given in section 270 of Companies act,2013
The Insolvency and Bankruptcy Code, 2016 ratified it's section 255 and in respect to section 255, the act of 2013 stands amended in accord with Schedule XI of that code. The above-mentioned Schedule XI now defines "Winding up'' with the help of a new section 2 (94A) to 2013 Act. By reading the new definition, it can be concluded that winding up process will be governed with the help of provisions of 2016 code also with the 2013 act. Another significant change introduced by the 2016 code to 2013 act includes the removal of provisions regarding ‘'voluntary winding up''. Also, the ground to wound up, inability to pay debts'' is removed from the 2013 Act, these proceedings now are included under the 2016 code.
Compulsory wound up or Wound up by the Tribunal
A tribunal may order for wound up of a company under section 271, when a petition is presented under section 272, under any ground mentioned in section 271. The grounds provided are: -
· When a company is not able to pay its debts.
· When a company was resolved by special resolution then the winding up of a company can be done by the tribunal.
· When the company acted or acts against the interests of the sovereignty and integrity of India, public order, or morality etc.
· When the tribunal ordered wound up of the company under the provision of chapter XIX.
· When the company makes any default regarding filing with the registrar its annual returns or financial statements for 5 consecutive years.
· When the wound up is considered to be just and equitable in the opinion of the tribunal.
The ground (g) is exceptionally wide in its words. 'Just' means legitimately substantial or legal; and 'equitable' means substantial in value (unprejudiced or reasonable right or case), as distinct from common law or statute law. What is 'just and equitable' ground or cause calling for winding up of an organization, will rely on the facts, data, and conditions of every specific case. Such just and fairgrounds might be not quite the same as when the principal question of the organization has fizzled; when the organization proposed to gain some running business but the merchant declined to sell it to the organization.
The appeal to the Tribunal for the wound up of an organization should be exhibited by the organization, or any creditor or creditors, (counting any unexpected or forthcoming leasers), any creditor or creditors, the Registrar, any individual approved by the Central Government in that behalf, or by the Central Govt. or on the other hand state govt. for a situation falling under proviso (c) of subsection (1) of s. 271. (s.272, Companies Act, 2013).
The Tribunal may, on receipt of an appeal for winding up under section 272 pass any of the accompanying requests, in particular: (an) expel it, with or without costs; (b) make any interim order as it supposes fit; (c) delegate a liquidator of the organization till the making of winding up order; influence a request for the winding up of the organization with or without costs; or some other appeal as it supposes fit. The appeal must be made in 90 days from the date of introduction of the appeal. (S.273). The council might guide the organization to record its complaints alongside an announcement of its issues if at first sight case for winding up exists according to the Tribunal.
The Tribunal might appoint A Company outlet as per s. 275 and may remove him as per s. 276 of the Act. Organization's Liquidator as characterized under s. 2(23) of the Act, is a man selected by the Tribunal in the event of "winding up by the Tribunal.
The organization liquidator might put before the Tribunal a report along with minutes of the meetings of the advisory group on a month to month premise properly signed by the individuals present at the meeting. The Company Liquidator might set up the draft last report for thought and endorsement of the winding up board of trustees. The last report so affirmed by the winding up board of trustees should be put together by the Company Liquidator before the Tribunal for passing of a dissolution order in regard to the organization. (S.277). Organization outlet needs to present its report in 60 days from the appeal given by the court, containing different budgetary subtle elements of the organization, as per s. 281. Powers and obligations of Company Liquidator are given in detail under s. 290, which quickly gives functional powers to the liquidator, which are expected to determine every one of the cases and liabilities of the organization, with the goal that it can be wound up.
Check on the Liquidators powers is given by S. 292, the power of which is given to the creditors or contributories, which can give him any bearing at any broad meeting or by the advisory council. The Company Liquidator additionally need to keep up appropriate records, with respect to minutes of meetings, books of record, and so on. Such records might be inspected on the appeal of the Tribunal. (S. 293-294).
The Tribunal should have jurisdiction to entertain, or discard (an) any suit or proceeding by or against the organization; any case made by or against the organization, including claims by or against any of its branches in India; (c) any application made under section 233; (d) any plan submitted under section 262; any inquiry of needs or some other inquiry at all, regardless of whether of law or actualities, including those identifying with resources, business, rights, privileges, … whether such suit or continuing has been founded or is initiated, or such case or proceeding has instituted or is instituted, or such application has been made or is made or such plan has been submitted, or is submitted, previously or after the appeal for the winding up of the organization is made. (s. 280)
The tribunal additionally has the ability to remain the way toward ending up at any stage, on a use of promoter, investor, or bank, in the event that it is fulfilled, that it is just and fair that a chance to restore and reestablish the organization be given.
The court additionally has the ability to make approaches any of the creditors, to the degree of their liability, for installment of any cash, which the tribunal thinks about important to fulfill the obligations and liabilities of the organization and the costs, charges, and costs of winding up, and for the alteration of the privileges of the creditors among themselves. (s.296). Tribunal may order, summon before it any officer of the organization or individual known or suspected to currently possess any property or books or papers, of the organization, or known or suspected to be obliged to the organization, or any individual whom the Tribunal thinks to be fit for giving data with respect to undertakings, and so forth of the organization. (s.299), including executives, promotors examinations likewise (s.300).
At the point when the issues of an organization have been totally wound up, the Company Liquidator might influence an application to the Tribunal for dissolution of such to the organization. The Tribunal might on an application documented by the Company Liquidation under subsection (1) of section 302, is of the assessment that it is simple and sensible in the conditions of the case that a request for the dissolution of the organization ought to be made, make a request that the organization be wound up from the date of the request, and the organization should be dissolved accordingly.
Section271(1)(a) of Companies Act, 2013 which managed the winding up be Tribunal by virtue of a failure to pay obligations have been excluded by Section 255 of The Insolvency and Bankruptcy Code, 2016. The same is currently managed as per the arrangements of Section 7 to 9 of the Code, is the beginning of corporate bankruptcy determination process by monetary and operational loan bosses.
An application to the arbitrating specialist (being the National Company Law Tribunal) for the commencement of corporate indebtedness determination process can be made just when there is a "default" in the installment of debt by a corporate individual. In such manner, it is to be noticed that the expression "default" has been characterized in the Code to mean non-reimbursement of an obligation, regardless of whether entire or to some degree, which has turned out to be expected and payable by a corporate individual. This would suggest that now under the Code, indebtedness determination procedures can be started even against a fiscally dissolvable "default" under the Code. Once the application for commencement of corporate indebtedness determination process is made and the same is acknowledged by the Tribunal, a bankruptcy proficient is selected for directing the corporate indebtedness determination process. The procedure is required to be finished in 180 days from the date of affirmation of the application by the Tribunal, on the disappointment of which, Tribunal may pass a request for the liquidation of the corporate individual in connection to whom the application was made.
Under the Companies Act, 2013, winding up applications could be made by virtue of "inability to pay debts". The expression "inability to pay debts" has been translated by Andhra Pradesh High Court on account of Reliance Infocomm Limited v. Sheetal Refineries Private Limited, to mean a circumstance where an organization is monetarily indebted, i.e. the current and probable resources would be deficient to meet the current liabilities. In this manner, a solution for the start winding up procedures against monetarily dissolvable organizations that had defaulted in the installment of obligations was not accessible under the prior administration. Notwithstanding, this is currently doable under The Insolvency and Bankruptcy Code, 2016.
Voluntary Winding up:
Whenever individuals and banks of an organization choose to wound up the organization without the mediation of the Tribunal, it is known as deliberate winding up of an organization. Intentional winding up is extremely regular in light of the fact that there are not all that numerous limitations in this kind of winding up as are found in the event of winding up by Tribunal.
Section 304 sets out that an organization might be winding up willfully in both of the accompanying two different ways:
· If the organization as a rule meeting passes a resolution requiring the organization to be wound up deliberately because of the expiry of the period for its length, assuming any, settled by its articles or on the event of any occasion in regard of which the articles give that the organization ought to be wound up; or
· If the organization passes a unique resolution that the organization is wound up willfully.
Section 305 is bound to make an announcement on the directors or directors of the company, stating that they have thoroughly investigated the affairs of the company and have made an opinion that the company has no loan or is it able to pay willfully voluntary winding or not fully loan from the income of the properties sold in the loan. For any such opinion, without any reasonable basis, any director of the company making a declaration under this section shall be punishable with imprisonment for this period, which shall not be less than 3 years, but which may extend to five years or the penalty which will not be less than 50,000 rupees, but which can increase up to Rs. 3 lakhs, or both.
Section 306 directs a company to call a meeting of creditors on the same day or the next. The board of directors has to submit a complete description of the situation of the company affairs, a copy of declaration declared under section 305 and the estimated amount of claims with the list of the company's creditors, thus, the first visit. If two-thirds of the value of the company's creditors are of the opinion that it is in the interest of all parties that the company has been voluntarily injured, only the company will be voluntarily wounded. However, if the decision of the creditors is that the companies have been injured by the Tribunal in accordance with the provisions of Part XX of Chapter XX Act, 2013, then the company must apply within fourteen days before the tribunal. The provision also provides both penalties for the company and for the default directory.
Where a company has passed a resolution for voluntary winding up and a proposal has been passed under sub-section (3) of section 306, the company will have to publish a notice of resolution by the advertisement in the Official Gazette and also in the newspaper Where the registered office of the company is located. (S307)
In the case of a voluntary turnover, the company is required to benefit its business, as far as it is necessary for the profitable turnover of its business.
The Central Government notified Section 59 of the Bankruptcy and Bankruptcy Code, 2016 on March 30, 2017. This provision of code provides for the process of adherence to the voluntary winding process. After this, the Bankruptcy and Bankruptcy Board of India, with its powers given by Section 59, 106 and 208, of the Bankruptcy and Bankruptcy Board (Voluntary Liquidity Procedure) Regulation, 2016, on 31st March, Section 240 of the Code, 2017
The recently notified section 59 determines that if a corporate person does not do any default work, he can voluntarily eliminate himself, under the provisions of the code, voluntary liquidation can begin the proceedings.
The Board can make specific provisions managing intentional liquidation procedures, however, these procedures must incorporate as indicated by s. 59(3) of the act, a declaration from greater part of the executives of the organization confirmed by an affidavit expressing that, they have influenced a full investigation into the issues of the organization and they have framed a conclusion that either the organization has no obligation or that it will have the capacity to pay up all required funds from the returns of assets to being sold in the intentional liquidation; and the organization isn't being liquidated to defraud any individual. The declaration has to be accompanied with, audited financial statements and records of business tasks of the organization for the past two years or for the period since its incorporation, whichever is later; a report of the valuation of the assets of the organization, if any prepared by an enrolled valuer.
In a month of a declaration, there might be an exceptional determination of the individuals from the organization in general meeting requiring the organization to be liquidated willfully and naming an indebtedness expert to go about as the liquidator; or a determination of the individuals from the organization requiring the organization to be exchanged deliberately because of expiry of time of its span and designating a bankruptcy expert to go about as the liquidator. This determination must be passed and endorsed by creditors speaking to 66% in the estimation of the obligation of the organization. The organization needs to then tell the Registrar of Companies and the Board in seven days of such resolution.
Under the Code, only an insolvency Professional can be appointed as a liquidator, and different necessities under regulation include, that both the bankruptcy expert and entity to which belongs, must be free of the corporate individual. Freedom might be there in the accompanying conditions:
• If he is qualified to be named as an autonomous director on the leading group of the corporate individual (organization) under section 149 of the Companies Act, in the last three financial years.
• Is not identified with the organization in the last 3 financial years.
• Was neither a employee, partner, proprietor in any of the organization's auditors, cost auditors or organizations secretaries firms, nor of a legitimate or counseling firm, which had any transaction with the corporate individual which drove the corporate individual contributing at least 10% of the gross turnover of such firm in the last three budgetary years.
The liquidator's rights and obligations are given in the code, under s. 35-53.
Where the affairs of the corporate individual/organization have been totally wound up, and its assets totally liquidated, the liquidator should make an application to the Adjudicating Authority (NCLT) for the dissolution of such corporate individual.
The way toward winding up of an organization isn't extremely basic, it incorporates within it numerous complexities and details. Prior there was just a single act, which for the most part administered this region, however now with the sanctioning of the Insolvency and Bankruptcy Code, 2016, it has turned out to be harder to apply these provisions and to choose priority. Consequently, these days, the region of organization law has turned into a specific field, as a result of its details, however, it executes different disadvantages too in light of the fact that the individual running the organization, their linkage with the legitimate working of the organization gets separated. Henceforth, straightforward and simpler laws are required, so that even non-lawful individual can know how to run organization, proficiently and legitimately, without absolutely relying upon attorneys.
18 July 2018 05 00 PM
‘Winding up' is the procedure to dissolve the company. As we all know, one of the characteristics of a company is perpetual succession. A company can only cease to exist if it is wound up. The director is no longer involved in managing company's affairs.
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