Meaning of winding up of company (Meaning of Winding-up/Liquidation of a Company)
The meaning of winding up of the company is the situation when the company’s business is stopped, the assets are sold, the money received is distributed among the shareholders as per rules, the amount remaining after paying the creditors. If the company does not have enough money at the time of winding up to pay the creditors as well, then in such a situation the company asks its shareholders for the amount according to their liabilities. In short, winding up of a company refers to the legal manner by which a company is dissolved.
Meaning of Dissolution of a Company
Dissolution of the company means the dissolution of the company by reason of its dissolution in which the company ceases to exist completely. In short, after the dissolution of the company- (i) the company ceases to exist completely. (ii) No work is done in relation to the company. (iii) The existence of the liquidator of the company also ceases to exist. (iv) Debts are not certified as the company ceases to exist.
Modes of Winding-up of a Company
According to the Companies Act, a company can be dissolved by either of the following two methods- (1) Dissolution by Tribunal (II) Voluntary winding up.
(I) winding up or compulsory winding up by the Tribunal
(Winding-up by Tribunal or Compulsory Winding-up) When the company is dissolved by the Tribunal, it is called winding up or compulsory by the Tribunal. According to the Companies Act, the company can be wound up by the Tribunal in the following cases could.
(i) When the company passes a special resolution regarding winding up.
(ii) When the company acts against the sovereignty and integrity of India. (iii) when the affairs of the company are being carried on fraudulently or when the company is committed to doing unlawful acts has been installed be.
(iv) When the company has not filed its financial statements with the Registrar for the last five consecutive years
(v) the company is unable to pay its debts.
(vi) If in the opinion of the Tribunal, the dissolution of the company is just and just. The winding up of the company is considered fair and just in the following cases: (i) if the business of the company is incurring continuous loss and it is not expected to make profit in future;
(ii) If the entire capital of the company is almost destroyed and there is no hope of recovering it (iii) If the minority shareholders of the company are being oppressed by the majority shareholders.
Who can make an application for winding up before the Tribunal? The following persons may apply- (i) the company itself; (ii) any prospective or current lender; (iii) any donor or shareholder; (iv) with the permission of the Central Government, the Registrar or (v) any person authorized by the Central Government.
Commencement of winding up by Tribunal
(i) Compulsory winding up is deemed to have commenced from the date of application to the Tribunal. (ii) Tribunal
If a resolution for winding up is voluntarily passed by the company before the application for winding up is made, then the winding up is deemed to have commenced at the time when the resolution was passed.
To make an order regarding winding up – When an application for winding up is made, the Tribunal
Sends the information to the company and fixes a date for hearing both of them. The Tribunal may, on hearing for the winding up of the company, dismiss a petition for winding up (1) with or without cost; or (2) adjourn the hearing with or without condition; or (3) make an interim order when he thinks fit; or (4) make an order with or without cost or other appropriate order for the winding up of the company.
effect or consequence of the winding up order
The winding up order has the following effects-
(1) Intimation of the order of winding up to the Government Settlement and Registrar- When the Tribunal orders winding up, it shall within seven days give notice of the same to the Government Settlement and the Registrar.
(2) To file a copy of the order of winding up with the Registrar – It is the duty of the person making the application for winding up and the company to file a certified copy of this order with the Registrar within two weeks of the order of winding up. The time of receipt of certified copy of the order shall not be taken into account for counting the time of two weeks to file this copy. After this certified copy is filed, the Registrar shall record the same in his books and shall give notice in the Official Gazette that such order has been made.
(3) Termination of the employment of the employees of the Company Such an order shall be deemed to be a notice to the officers and employees of the Company to terminate the employment, unless it is proved that the business of the Company shall be carried on.
(4) After the order of winding up is issued on the legal proceedings, all the ongoing cases against the company are stopped and no legal action can be taken against the company.
(5) Effect of winding up order on creditors and shareholders The order of winding up of the company shall have such effect in the interest of all the creditors and subscribers of the company as if it were passed on a joint application of the creditor and the subscriber.
(II) Voluntary Winding-up
When the members of the company and the creditors decide to dissolve the company without the intervention of the court, it is called ‘voluntary winding up’. Voluntary winding up is relatively more profitable and according to the Act, there is not much restriction in this winding up, so the winding up of the company is often done by this method only.
Conditions of Voluntary Dissolution- The voluntary winding up of the company can be done in the following cases-
(a) Expiry of term- A company can dissolve the company by passing a resolution in its general general meeting. If (1) the term of the company specified in the Articles has expired or (ii) an event has occurred on the happening of which the company shall be dissolved in accordance with the Articles.
(b) Passing a special resolution The company for any other reason passes a special resolution in its meeting can do voluntary winding up of the company. Publication of special resolution for voluntarily winding up – If a special resolution is passed voluntarily for the dissolution of the company, then within 14 days of the passing of such resolution, such information should be given by the company in the official gazette and newspaper.
Commencement of voluntary winding up – The voluntary winding up of a company is deemed to have commenced from the date on which a special resolution has been passed to do so. Effect of voluntary winding up- In case of voluntary winding up of the company, the following effects are there-
(1) In case of voluntarily winding up of the company, the company shall cease its business from the date of commencement of the winding up, unless the continuance of business is necessary for the dissolution of the company.
(2) The amalgamated status and amalgamated rights of the company shall continue till the dissolution of the company.
(3) The transfer of shares after the commencement of the winding up of the company is void without the consent of the liquidator it happens.
(4) Changes made in the status of the members of the company after the commencement of the winding up of the company are void.