Meaning of Winding Up

Winding up means ending or dissolving a company. In other words, it is the process by which life of a company brought to an end. Winding up of company includes selling of assets, paying the creditors and distribution of remaining assets to the partners or shareholders. There are many reasons for winding up a company such as loss in business, company closure, passing away of promoters etc.

Law Governing The Procedure Of Winding Up

Section 270 of the company’s act 2013 governs the procedure of winding up of a company in India.

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Modes Of Winding Up a Company

There are two ways by which a company winds up its business –

  1. Winding up of a company by the tribunal
  2. Voluntarily winding up of a company by its members

Winding Up Of Company By a Tribunal

A company starts winding up its business after getting the order from the tribunal. It is also known as compulsory winding up of a company. In this case, court gives orders to the company to appoint a liquidator who takes control of the company, collect its assets, pay off the debts & distribute the profit among the members as per their rights.

Reasons For Company Wounded By a Tribunal

According to the companies act 2013, company can be wind up by a tribunal if –

  • Company is unable to pay its debts
  • Tribunal ordered the company to wind up under chapter XIX
  • Company has acted against the interest of sovereignty & integrity of India, state security, public order, friendly relations with foreign states, decency or morality etc.
  • The company has not filed annual returns or financial statements from the last 5 consecutive years.
  • Tribunal opinion is just that the company should be wound up.
  • The company has by special resolution resolved that the company be wound up by the tribunal.
  • The company catches doing fraudulent or unlawful activities or the persons working in the company found guilty of fraud or misconduct.

Voluntary Winding Up Of A Company

Voluntary winding up of company means wounding up of a company by its members voluntarily. Winding up of a company can be done voluntarily by the members of the company, if –

  • The company passes a special resolution to wind up the company
  • The company passes a resolution in the general meeting to wind up voluntarily as a result of the expiry of the period of its duration as per articles of association or any event occurred with respect of which articles of association declares that the company should be dissolved.

Procedure Of Voluntarily Winding Up Of Company

The procedure of voluntarily winding up of a company is as follows –

  • Step 1 – Firstly, conduct a board meeting with 2 directors to pass a resolution along with the declaration that the company has no debts and the company is in a position to pay its creditors after selling company’s assets.
  • Step – 2 –In the second step, company issues a written notice to call a general meeting along with explanatory statement proposing the resolution.
  • Step – 3 – In the third step, Company pass the ordinary resolution in the general meeting for the purpose of winding up by ordinary majority or 3/4th of the majority by passing the special resolution.
  • Step – 4 – After passing the special resolution in the third step, conduct a meeting of creditors and if majority of the creditors are having the same opinion that winding up of a company is beneficial for all the parties, company will be wounded voluntarily.
  • Step – 5 – After taking the decision in the creditors meeting to wind up the company, file a notice with the registrar to appoint a liquidator within 10 days after passing of resolution.
  • Step – 6 – In the sixth step, company has to give notice of the resolution in the official gazette and also advertise the same in the newspaper within 14 days after passing of resolution.
  • Step – 7 – In the 7th step, company has to file certified copies of resolution (ordinary or special) passed within 30 days of the general meeting.
  • Step – 8 – In the 8th step, wind up the affairs of the company, prepare the liquidator account and auditors will audit the same.
  • Step – 9 – In the 9th step, company conducts a general meeting
  • Step – 10 – In the 10th step, company pass a special resolution in the general meeting to dispose books and all other necessary documents after winding up the affairs of the company.
  • Step – 11 – In the 11th step, company submits account copy as well as application to the tribunal within 15 days of the first general meeting to pass order for dissolution.
  • Step – 12 – In the 12th step, If a tribunal found that your all accounts are in order and company has followed all the necessary compliances, tribunal will pass the order for dissolving the company within 60 days of receiving the application
  • Step – 13 – The appointed liquidator submits a copy of order with the registrar in step - 13.
  • Step – 14 – In step – 14, registrar publish a notice on the official gazette declaring that the company is dissolved after receiving the order passed by tribunal.

Winding Up Of Company FAQ’S

There are two ways by which you can wind up the company –

There are two ways by which a company wind up its business –

  1. By the tribunal
  2. Voluntary winding up of a company
Section 230 of the company’s act 2013 governs the procedure of winding up of the company.
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