Company Closing
Winding up a corporation is a legitimate process for effectively winding down a product. This is a mechanism by which the legal life of the Company comes to an end, and the Company undertakes to terminate under the control of the Liquidator. The Liquidator controls and maintains the finances of the Company at this critical point of the Company's existence to ensure that the interests of the creditors are not affected. By the end of the day, closure happens where the Corporation is disbanded and the identity of the Registrar of Companies is terminated. And the company's life is coming to an close.
Evolution of the Rules of Winding Up
For the first time, the winding-up clauses were incorporated into the legal brotherhood by the Companies Act , 1956, and were eventually maintained by the Companies Act , 2013. Under the Companies Act , 1956, there were three types of winding-up:
Winding Up by Tribunal or Compulsive Winding Up;
Voluntary Winding Up
Winding Up subject to oversight by the Court
However, the third provision was omitted by the Companies (Second Amendment) Act, 2002, and the word 'Court' was replaced by 'Tribunal.'
A circumstance under which a company is unable to pay its debts used to fall within the category of liquidation by the Court of Justice. The company's inability to pay debts was considered when it failed to pay off a debt of more than Rs.500 (Five Hundred Rupees), which was subsequently changed to an amount exceeding Rs.1.00000 (One Lakh Rupees) by way of the Companies Act (Second Amendment) 2002.
In that case, the creditors initially sent a complaint note, which the Company had to respond to within 21 days. However, if the Company defaults and refuses to pay the due sum, the winding-up process will be begun.
The Companies Act, 1956 was revised and the amended Companies Act, 2013 ('Act') was introduced, but the winding-up rules remained the same until the Legislature adopted the new Code, i.e. Code of Insolvency and Fraud, 2016 ('IBC/Code'). Interestingly, neither the Companies Act, 1956, nor the Companies Act, 2013 has ever specified the term winding up. This was only on 15 November 2016; a classification clause was added under the Companies Act 2013, when IBC was enacted as Clause 2(94A) of the Act, which now describes winding-up as "winding-up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable."
Winding Up Under Company Act , 2013.
Prior to IBC, corporations were wound up under the Act through the following two modes:
The Willing Winding Up
Compulsory spinning, that is. Winding up to the Trial
Voluntary liquidation by the Tribunal on the basis of failure to settle debts has been omitted from the Act and put under the Code according to Section 59 and Sections 33 to 54, respectively. At the same time, the liquidation by the Tribunal, rather than the refusal to pay debts as provided for in Section 271 of the Act, Section 255 of the IBC has also been revised in compliance with Schedule XI of the Legislation. Now, there are 5 situations alluded to in section 271 of the Act in which the Tribunal can be convened. The conditions for filing a winding-up petition are as follows:
If the Company has determined, by special resolution, that it should be wound up by the Tribunal;
If the Company has behaved against the interests of the freedom and independence of India, the stability of the Government, the ties of goodwill with the foreign States, public order, courtesy and morality;
When, on an application filed by the Registrar or any other person approved by the Central Government by notification under this Act, the Tribunal is of the opinion that the company of the Company has been carried out in a dishonest manner or that the Company has been created for a dishonest and unlawful reason or that the persons concerned have been guilty of fraud in the establishment or management of its company;
If the Company has made a default in filing its financial statements or annual returns with the Registrar for the preceding five consecutive fiscal years; or
If the Tribunal is of the view that it is reasonable and equal for the Corporation to be liquidated.
Pursuant to section 272 of the Act, the following complaint is filed for the winding-up of the Company:
Company: can send a petition if a special resolution has been adopted to that effect.
Contributory or Creditor: can make a claim, given the fact that the Company is the issuer of entirely paid-up stock, or that the Company may have no assets at all or no surplus assets remaining to be spread to the owners on the fulfillment of its liabilities, and the stock in respect to which it is a lender or any of which were originally assigned to it or have been retained.
Registrar:-file a petition after receiving the permission of the Central Government, where the Central Government must give the Client a fair opportunity to do so before issuing such a permit to the Registrar. The Registrar may file a petition under points (b) to (d) of Section 271, i.e. where:
The Company shall act against the security of the country; or
The company of the Business has been carried out in a dishonest manner;
The Corporation shall not issue financial accounts or tax reports
Any person authorized by the Central Government or the Central Government or the Government of the State: a petition may be lodged in the case referred to in Article 271(b), i.e. where the Company acts against the interest, the State Security.
This provision clarifies that a copy of each petition sent to the Tribunal for termination shall also be given to the Registrar, to which the Registrar shall give its opinion within 60 days of receipt of the petition.
The Tribunal may, pursuant to section 273 of the Act, issue the following orders upon receipt of a request for the winding-up of the Corporation by any of the parties allowed pursuant to section 272 of the Act:
Dismissal of the complaint (with or without costs);
Make an interim order, as it sees fit;
Nominate the Provisional Liquidator until a winding-up order has been issued;
Order Winding Up (with or without cost); or
Some other order, as he feels fit
Such an decision must always be made within 90 days of the date of issuance of such a petition. The Act further empowers the Tribunal to allow the Client a fair chance to make claims before naming a temporary liquidator.
It should be noted that the Tribunal shall not refuse to issue a winding-up order solely on the ground that the assets of the Company have been mortgaged for an amount equal to or greater than those assets, or that the Company has no assets.
The Tribunal shall not order liquidation at random unless a complaint is lodged on the grounds of justice and equity. Alternatively, it looks for other options open to the petitioners rather than actually requesting an unfair exemption from the winding-up of the Company.
Winding Up Practice (Section 274 to Section 365):
It is important to consider the step-by - step method of ending up under the Act. The procedure laid down in the Statute is as follows:
The Tribunal may direct the Company to be wound up if it is satisfied that there is a prima facie case. The Tribunal also orders the Corporation to file its appeals, along with a statement of its activities, within 30 days of the decision (this period can be expanded under exceptional circumstances).
In addition, the Tribunal shall also appoint a provisional liquidator or liquidator of the company at the time of the passing of the order. The Liquidator shall file a statement on his appointment in the specified manner within seven days from the date of nomination, and shall reveal a conflict of interest or loss of discretion in respect of his position.
If a winding-up order has been issued by the Tribunal, the directors and all other officials shall send the finished and audited accounts of the Company to the Provisional Liquidator within 30 days of that decision. If the director or other officers fail to apply the correct audited accounts, they shall be individually liable for fines and imprisonment for violation of the provisions of the Act.
Within 7 days of the order for appointment of the provisional Liquidator, the Tribunal shall notify the Liquidator and the Registrar accordingly. Upon receipt of the copy of the order, the Registrar shall approve the same order and inform the Official Gazette of the order. In the case of a listed company, the Registrar shall inform the stock exchange or exchanges where the securities of the company are listed.
The winding-up order shall be considered to be a notification of discharge to the officers, managers and staff of the Company, even when the company of the Company continues.
Within 3 weeks of the date of passing of the winding-up order, the liquidator company shall submit an application to the Tribunal for the establishment of a winding-up committee to assist and monitor the progress of liquidation. Such a committee will be consisting of the Liquidator, the representative of the protected creditors and the competent member of the Tribunal.
When the winding-up order has been signed, no claim or other legal proceedings shall be commenced, or are ongoing, either by or against the Company, even with the leave of the Tribunal.
Upon passing the winding-up order, the Tribunal shall issue an order to set up an advisory committee to support the Liquidator and report to the Tribunal on the issues that could be referred to the Tribunal. The Committee will not exceed 12 members, chaired by the Liquidator Company, composed of shareholders and investors.
The Liquidator shall submit a report to the Tribunal within 60 days of the date of passing of the winding-up order. The report will be exhaustive, comprising of the existence and description of the properties, the value of the properties, the amount of debt given, actual and future liabilities, etc. The Liquidator shall also comment on the measures to be taken to optimize the value of the estate. The Liquidator will issue quarterly reports to the Tribunal on the success of the Company from time to time.
Upon reviewing the report by the Liquidator, the Tribunal shall decide the period during which the whole proceedings are to be completed and the Company shall be dissolved, or the Tribunal may, after inspection of the report, order the disposal of the Company as a matter of interest or of its properties or part thereof. In order to assist the Liquidator in the transaction, a selling committee shall be set up, composed of shareholders, promoters and officers of the Company.
Subsequently, on the order of winding-up, the Liquidator shall take into custody and manage all the properties, consequences and actionable claims of which the Corporation is or appears to be entitled. As from the date of the winding-up order, the land shall be declared to be in the jurisdiction of the Tribunal.
The Liquidator is obliged to apply to the Tribunal an account of the receipts and expenses of the Corporation to be audited, and a copy of the audit report will be lodged with the Tribunal, with all copies made available to the Registrar for review by any creditor, claimant or involved party.
The Tribunal then orders the creditors to pay all money from the Product. If any money is due from the Company to the Contributor and the Contributor has not paid the full amount of the share, it shall be allowed to be paid off. In addition, the Tribunal may issue a summons to those accused of possessing the properties of the Company and investigate those individuals. Apart from this, if any other entity has any property of the Company, the Liquidator shall request a declaration of the same.
The Liquidator company has the power to call on creditors to prove their claims on which the Liquidator prepares a list of creditors. Each creditor shall then be notified of the acceptance or refusal of their claims. The Liquidator shall also insure that any invoice, order or business letter provided by or on behalf of the Corporation includes a declaration that the Corporation is being wound up.
Until all the formalities have been concluded, the activities of the Company have been fully dissolved, the Liquidator shall make an application to the Tribunal for dissolution of the Company. If the Tribunal considers, after receipt of the request, that it is fair and reasonable to dissolve the Company, an order for dissolution shall be issued. A copy of the order shall be forwarded to the Registrar by the Liquidator.
Evolution of the Rules of Winding Up
For the first time, the winding-up clauses were incorporated into the legal brotherhood by the Companies Act , 1956, and were eventually maintained by the Companies Act , 2013. Under the Companies Act , 1956, there were three types of winding-up:
Winding Up by Tribunal or Compulsive Winding Up;
Voluntary Winding Up
Winding Up subject to oversight by the Court
However, the third provision was omitted by the Companies (Second Amendment) Act, 2002, and the word 'Court' was replaced by 'Tribunal.'
A circumstance under which a company is unable to pay its debts used to fall within the category of liquidation by the Court of Justice. The company's inability to pay debts was considered when it failed to pay off a debt of more than Rs.500 (Five Hundred Rupees), which was subsequently changed to an amount exceeding Rs.1.00000 (One Lakh Rupees) by way of the Companies Act (Second Amendment) 2002.
In that case, the creditors initially sent a complaint note, which the Company had to respond to within 21 days. However, if the Company defaults and refuses to pay the due sum, the winding-up process will be begun.
The Companies Act, 1956 was revised and the amended Companies Act, 2013 ('Act') was introduced, but the winding-up rules remained the same until the Legislature adopted the new Code, i.e. Code of Insolvency and Fraud, 2016 ('IBC/Code'). Interestingly, neither the Companies Act, 1956, nor the Companies Act, 2013 has ever specified the term winding up. This was only on 15 November 2016; a classification clause was added under the Companies Act 2013, when IBC was enacted as Clause 2(94A) of the Act, which now describes winding-up as "winding-up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable."
Winding Up Under Company Act , 2013.
Prior to IBC, corporations were wound up under the Act through the following two modes:
The Willing Winding Up
Compulsory spinning, that is. Winding up to the Trial
Voluntary liquidation by the Tribunal on the basis of failure to settle debts has been omitted from the Act and put under the Code according to Section 59 and Sections 33 to 54, respectively. At the same time, the liquidation by the Tribunal, rather than the refusal to pay debts as provided for in Section 271 of the Act, Section 255 of the IBC has also been revised in compliance with Schedule XI of the Legislation. Now, there are 5 situations alluded to in section 271 of the Act in which the Tribunal can be convened. The conditions for filing a winding-up petition are as follows:
If the Company has determined, by special resolution, that it should be wound up by the Tribunal;
If the Company has behaved against the interests of the freedom and independence of India, the stability of the Government, the ties of goodwill with the foreign States, public order, courtesy and morality;
When, on an application filed by the Registrar or any other person approved by the Central Government by notification under this Act, the Tribunal is of the opinion that the company of the Company has been carried out in a dishonest manner or that the Company has been created for a dishonest and unlawful reason or that the persons concerned have been guilty of fraud in the establishment or management of its company;
If the Company has made a default in filing its financial statements or annual returns with the Registrar for the preceding five consecutive fiscal years; or
If the Tribunal is of the view that it is reasonable and equal for the Corporation to be liquidated.
Pursuant to section 272 of the Act, the following complaint is filed for the winding-up of the Company:
Company: can send a petition if a special resolution has been adopted to that effect.
Contributory or Creditor: can make a claim, given the fact that the Company is the issuer of entirely paid-up stock, or that the Company may have no assets at all or no surplus assets remaining to be spread to the owners on the fulfillment of its liabilities, and the stock in respect to which it is a lender or any of which were originally assigned to it or have been retained.
Registrar:-file a petition after receiving the permission of the Central Government, where the Central Government must give the Client a fair opportunity to do so before issuing such a permit to the Registrar. The Registrar may file a petition under points (b) to (d) of Section 271, i.e. where:
The Company shall act against the security of the country; or
The company of the Business has been carried out in a dishonest manner;
The Corporation shall not issue financial accounts or tax reports
Any person authorized by the Central Government or the Central Government or the Government of the State: a petition may be lodged in the case referred to in Article 271(b), i.e. where the Company acts against the interest, the State Security.
This provision clarifies that a copy of each petition sent to the Tribunal for termination shall also be given to the Registrar, to which the Registrar shall give its opinion within 60 days of receipt of the petition.
The Tribunal may, pursuant to section 273 of the Act, issue the following orders upon receipt of a request for the winding-up of the Corporation by any of the parties allowed pursuant to section 272 of the Act:
Dismissal of the complaint (with or without costs);
Make an interim order, as it sees fit;
Nominate the Provisional Liquidator until a winding-up order has been issued;
Order Winding Up (with or without cost); or
Some other order, as he feels fit
Such an decision must always be made within 90 days of the date of issuance of such a petition. The Act further empowers the Tribunal to allow the Client a fair chance to make claims before naming a temporary liquidator.
It should be noted that the Tribunal shall not refuse to issue a winding-up order solely on the ground that the assets of the Company have been mortgaged for an amount equal to or greater than those assets, or that the Company has no assets.
The Tribunal shall not order liquidation at random unless a complaint is lodged on the grounds of justice and equity. Alternatively, it looks for other options open to the petitioners rather than actually requesting an unfair exemption from the winding-up of the Company.
Winding Up Practice (Section 274 to Section 365):
It is important to consider the step-by - step method of ending up under the Act. The procedure laid down in the Statute is as follows:
The Tribunal may direct the Company to be wound up if it is satisfied that there is a prima facie case. The Tribunal also orders the Corporation to file its appeals, along with a statement of its activities, within 30 days of the decision (this period can be expanded under exceptional circumstances).
In addition, the Tribunal shall also appoint a provisional liquidator or liquidator of the company at the time of the passing of the order. The Liquidator shall file a statement on his appointment in the specified manner within seven days from the date of nomination, and shall reveal a conflict of interest or loss of discretion in respect of his position.
If a winding-up order has been issued by the Tribunal, the directors and all other officials shall send the finished and audited accounts of the Company to the Provisional Liquidator within 30 days of that decision. If the director or other officers fail to apply the correct audited accounts, they shall be individually liable for fines and imprisonment for violation of the provisions of the Act.
Within 7 days of the order for appointment of the provisional Liquidator, the Tribunal shall notify the Liquidator and the Registrar accordingly. Upon receipt of the copy of the order, the Registrar shall approve the same order and inform the Official Gazette of the order. In the case of a listed company, the Registrar shall inform the stock exchange or exchanges where the securities of the company are listed.
The winding-up order shall be considered to be a notification of discharge to the officers, managers and staff of the Company, even when the company of the Company continues.
Within 3 weeks of the date of passing of the winding-up order, the liquidator company shall submit an application to the Tribunal for the establishment of a winding-up committee to assist and monitor the progress of liquidation. Such a committee will be consisting of the Liquidator, the representative of the protected creditors and the competent member of the Tribunal.
When the winding-up order has been signed, no claim or other legal proceedings shall be commenced, or are ongoing, either by or against the Company, even with the leave of the Tribunal.
Upon passing the winding-up order, the Tribunal shall issue an order to set up an advisory committee to support the Liquidator and report to the Tribunal on the issues that could be referred to the Tribunal. The Committee will not exceed 12 members, chaired by the Liquidator Company, composed of shareholders and investors.
The Liquidator shall submit a report to the Tribunal within 60 days of the date of passing of the winding-up order. The report will be exhaustive, comprising of the existence and description of the properties, the value of the properties, the amount of debt given, actual and future liabilities, etc. The Liquidator shall also comment on the measures to be taken to optimize the value of the estate. The Liquidator will issue quarterly reports to the Tribunal on the success of the Company from time to time.
Upon reviewing the report by the Liquidator, the Tribunal shall decide the period during which the whole proceedings are to be completed and the Company shall be dissolved, or the Tribunal may, after inspection of the report, order the disposal of the Company as a matter of interest or of its properties or part thereof. In order to assist the Liquidator in the transaction, a selling committee shall be set up, composed of shareholders, promoters and officers of the Company.
Subsequently, on the order of winding-up, the Liquidator shall take into custody and manage all the properties, consequences and actionable claims of which the Corporation is or appears to be entitled. As from the date of the winding-up order, the land shall be declared to be in the jurisdiction of the Tribunal.
The Liquidator is obliged to apply to the Tribunal an account of the receipts and expenses of the Corporation to be audited, and a copy of the audit report will be lodged with the Tribunal, with all copies made available to the Registrar for review by any creditor, claimant or involved party.
The Tribunal then orders the creditors to pay all money from the Product. If any money is due from the Company to the Contributor and the Contributor has not paid the full amount of the share, it shall be allowed to be paid off. In addition, the Tribunal may issue a summons to those accused of possessing the properties of the Company and investigate those individuals. Apart from this, if any other entity has any property of the Company, the Liquidator shall request a declaration of the same.
The Liquidator company has the power to call on creditors to prove their claims on which the Liquidator prepares a list of creditors. Each creditor shall then be notified of the acceptance or refusal of their claims. The Liquidator shall also insure that any invoice, order or business letter provided by or on behalf of the Corporation includes a declaration that the Corporation is being wound up.
Until all the formalities have been concluded, the activities of the Company have been fully dissolved, the Liquidator shall make an application to the Tribunal for dissolution of the Company. If the Tribunal considers, after receipt of the request, that it is fair and reasonable to dissolve the Company, an order for dissolution shall be issued. A copy of the order shall be forwarded to the Registrar by the Liquidator.
