Winding up of a Private Limited Company

What are the benefits of winding up a company?

Free from debts after liquidation: Once the liquidation process is over, the directors and all company officials are free from all creditor liabilities and pressure.

Avoiding legal action against the company: If the resolution is passed voluntarily by directors, they will neglect legal action taken by the court or the tribunal, and provide a platform to company directors to concentrate on other business opportunities.

Comparingly low cost charged for liquidation: The cost or expenses involved in the liquidation process is relatively low, as charges will be applicable on the sale of assets.

All lease agreements will be canceled: If any company or entity has entered into a lease for a prescribed time, during the liquidation process, it will terminate all the terms and conditions of the lease. If any penalty has to be paid, it will be deducted from the sale of assets.

Advantages for creditors: After a prolonged struggle, creditors will benefit from the liquidation process as they will be eligible for a default payment, concerning the proposition of credits given by all creditors

What are the checklist rules for winding up a company?

• Board meetings should be convened for the approval of winding up a company
• A notice should be issued in written form for convening a general meeting to pass a resolution on the winding-up procedure.
• An appointment of an official liquidator or insolvency professional should be made.
• The income tax department should be acknowledged with respect to the resolution passed at the meeting for voluntary winding up of the company.
• Simultaneously, the No Objection Certificate (NOC) should be obtained from the Income-tax department.
• If the creditors are in majority, then the creditors meeting should be conducted to approve the resolution passed in the general meeting; given that creditors are owed 2/3rd of the company debts.
• Before initiating a wind-up process, an intimation should be conveyed to the Insolvency and Bankruptcy Board of India (IBBI) within 7 days from the date of approval of the resolution.
• An announcement should be made to the public within 14 days of passing the wind up a resolution in an official gazette, one English newspaper, and one local newspaper, where the registered company has been located.
• The whole winding up the process should be completed within 12 months from the initiation of the liquidation.

Wind up Private

How to wind up a private limited company?

Winding up of a private limited company can be done in 3 different ways.

Selling company shares: By selling the majority company shares to another person or entity, the shareholders will avoid the burden of debts. Hence, voting powers, rights, and responsibilities will be laid on the acquired person or the entity.

Voluntary wind up: Voluntary wind up can be commenced either by special resolution or a resolution taken during a general body meeting. By violating any of the terms and conditions of the memorandum of association (MOA), the winding can be executed. Similarly, due to insufficient financial funds or inability to clear the debts, a company can be winded up.

A voluntary wind up can be of two types

Members’ Voluntary Winding Up

If a company remains solvent (able to pay the debts) at the time of closure and its directors make a voluntary declaration for the same, it is termed as the Members’ Voluntary Winding Up. Such a declaration should have the following characteristics-

• It must be substantiated by an affidavit
• It must be made within 5 weeks preceding the date of the resolution passed by the company to wind up. It must be submitted to the registrar before the due date.
• A copy of the latest and audited profit & loss statement of the company ( as on a practicable date before the declaration of solvency) should accompany the declaration
• The latest company balance sheet and a statement of assets & liabilities should be enclosed with the declaration.

The following steps are necessary to carry out the process of Members’ Voluntary Winding Up-

• Solvency declaration by the directors, as mentioned above
• The statutory declaration to the Registrar
• Appointment of liquidator
• Collection of the assets belonging to the company, payment of its liabilities and distribution of the balance of the proceeds among the contributors

Creditor’ Voluntary Winding Up

If the solvency declaration is not made by the directors and submitted to the registrar, the company is presumed to be insolvent. In such a case, the creditors must meet (usually after the company general meeting) to pass the resolution for winding up and liquidation of the company.

The following steps are necessary to carry out the process of Creditors’ Voluntary Winding Up-

• The general meeting of the company passes a resolution to wind up the company operations
• A meeting of the creditors must take place
• The members and creditors must appoint a liquidator or a group of liquidators

  They must set up a committee of inspection as well

• The process of winding upstarts as per provisions of law

Procedure for voluntary wind up

• With respect to the companies act, 1961, the resolution of the board meeting is essential to start the winding up process.
• In a special resolution, a majority of 3/4th of the company shareholders should register their vote on the side of winding up the company.
• Similarly, the company’s creditors should approve the resolution made for winding up, without complications.
• The “Declaration of Solvency” should enclose outstanding debts along with the auditor report, regarding total assets of the company and it should be forwarded to the RoC (Registrar of Companies).
• Now the official liquidator will be appointed to perform the winding up process from the date of passing the resolution.
• After the resolution has been passed, the liquidator should open a bank account within a period of one month.
• In any scheduled bank, the liquidator should open a bank account in the name with, the prefix “ the name of the company” followed by “voluntary liquidation”.
• The liquidator will collect all the reliable documents and prepare a report consisting of final accounts and present this in a general meeting for approval. Here, the majority of members should pass this resolution.
• After compiling all the necessary documents, the final report will be sent to the tribunal for reference.
• After examining the credibility of the report, the tribunal will pass a decree for the dissolution of the company.
• A copy of that decree will be forwarded to RoC by the liquidator within 30 days of the order dated.
• Now the RoC will mandate the winding up of the company, and remove the name of that company from the registry.
• Simultaneously, the RoC will publish this order in the official gazette of india.

Compulsory wind up: Any company registered in India can be compulsorily winded up by theaction of the tribunal or court, if the respective company has indulged in any fraudulent/ unlawful activities. The petition can be filed by

• The company itself
• The Registrar of companies (RoC)
• The creditors of the company
• The central/state governments
• The contributors

Procedure for complusory Windup

• The petition to the tribunal should be filed along with the statement of affairs, of the disputed company.
• After scrutinizing the credibility of the petition filed, the tribunal may accept or reject the aforesaid petition.
• Here, the liquidator will be appointed by the tribunal itself.

  The liquidator will execute all assets of the company, examine the book of accounts, and compile into a draft/report.

• These reports are to be forwarded to the tribunal after the winding up committee had accepted the same.