Procedure | Company Law - CLAT PG PDF Download

Procedure for Winding Up a Company

The procedure for winding up a company involves the appointment of a liquidator by the company in a general meeting and by creditors in their meeting. The liquidator's remuneration, powers, and reporting requirements are also outlined.

Appointment of Liquidator

• The company in a general meeting and the creditors in their meeting appoint a liquidator.
• They may agree on one liquidator, or if two names are suggested, the liquidator appointed by the creditors will act.

Court Intervention

• Any director, member, or creditor can approach the court for directions regarding the liquidator's appointment.
• The court can direct that the liquidator appointed in the general meeting shall act, jointly with the liquidator appointed by the creditors, or appoint an official liquidator, or some other person as liquidator.

Remuneration of Liquidator

• The remuneration of the liquidator is fixed by the creditors or by the court.

Powers of Liquidator

• Upon appointment, all the powers of the Board of Directors cease.

Annual Reporting

• If the winding up procedure takes more than one year, the liquidator must call a general meeting and a meeting of creditors at the end of each year.
• The liquidator shall present a complete account of the procedure and the status of liquidation.

Final Meeting and Accounts

• Once the affairs of the company are wound up, the liquidator shall call a final meeting of the company and the creditors.
• The liquidator must advertise the meeting at least one month in advance through local newspapers and the Official Gazette.
• During the meeting, the liquidator presents the accounts of the winding up.

Submission of Accounts

• Within one week of the meeting, the liquidator shall send a copy of the accounts and a return of resolutions to the Registrar.

Voluntary Winding Up

• A sick or potentially sick company can file a petition for voluntary winding up.
• The company must seek clearance for closure from the government.
• A company referred to the Board of Financial and Industrial Reconstruction can be wound up after the board's order is passed.
• Once the settlement amount(assets minus liabilities) is determined, the permission of RBI is obtained for the final settlement to the owners of the company.

Distribution of Property on Voluntary Winding Up

• Once the company is fully wound up and the assets are sold or distributed, the proceeds are used to pay off the liabilities.
• The proceeds collected are utilized to pay off the creditors in equal proportion.
• Any remaining money or property is distributed among members according to their rights and interests in the company.

Role of Company in Voluntary Liquidation

A. Member’s Voluntary Winding Up

1. To convene a Board Meeting:

• To make a declaration of solvency in Form 149 under Rule 313 of Company Court Rules 1959.
• If Directors are of the opinion that the company has no debts or will pay its debts within 3 years.

2. The declaration should be accompanied by:

• Audited Balance Sheet.
• Profit & Loss account as on the nearest practicable date before the declaration.
• Auditor’s Report thereon.

3. Approval of:

• Draft declaration and affidavit.
• Authority to director to sign and deliver the declaration to ROC.

4. Approval of draft resolution to be passed in the Meeting of Shareholders.

5. Appointment of liquidator(s) and fixing their remuneration:

• A body corporate cannot be appointed as a liquidator.
• A body corporate of professionals approved by the Central Government can be appointed.
• A CA firm can be appointed as a liquidator.
• The remuneration fixed by the members in the meeting cannot be increased.

6. Fixing the date, time, and venue for holding the General Meeting and approving the draft notice for the same.

7. Holding the General Meeting and passing the applicable Ordinary or Special Resolution.

8. Filing the declaration duly verified by an affidavit before a Judicial Magistrate with the concerned ROC before the date of the General Meeting in e-form 62:

• For winding up.
• For appointment of liquidator.

9. Forwarding copies of notices and proceedings of the general meeting to the Stock Exchange promptly (if applicable).

10. Filing notice for the appointment of the liquidator within 10 days from the date of passing of the Resolution of winding up to the Registrar of Companies (e-form 62):

• The vacancy in the office of the liquidator will be filled by the company in its general meeting.
• Fresh notice will be given to ROC within 10 days of such appointment.

11. Submitting a statement of affairs of the company in Form-57 duly verified by Affidavit in form-58 within 21 days of commencement of winding up to the liquidator.

The Statement of Affairs primarily includes:

• Assets, liabilities, and debts.
• Name, address, and other particulars of creditors, secured and unsecured.
• In case of secured creditors, the nature of security should be mentioned.

Members' Voluntary Winding-up vs Creditors' Voluntary Winding-up

Members' Voluntary Winding-up is applicable for solvent companies, requiring directors to file a Declaration of Solvency with the Registrar. In contrast, Creditors' Winding-up is for insolvent companies.

Key Differences Between Members' and Creditors' Voluntary Winding-up

• Eligibility: Members' voluntary winding-up is for solvent companies, while creditors' winding-up is for insolvent companies.
• Declaration of Solvency: Required in members' voluntary winding-up but not in creditors' winding-up.
• Creditors' Meeting: No need for a creditors' meeting in members' voluntary winding-up; a meeting is mandatory in creditors' voluntary winding-up.
• Appointment of Liquidator: In members' winding-up, the liquidator is appointed by the members. If the members and creditors nominate different liquidators in creditors' winding-up, the creditors' nominee prevails.
• Committee of Inspection: Can be appointed in creditors' voluntary winding-up but not in members' voluntary winding-up.
• Liquidator's Remuneration: Fixed by members in members' voluntary winding-up; determined by the Committee of Inspection or creditors in creditors' voluntary winding-up.

Judicial Perspective

• Bowes v. Hope Life Insurance and Guarantee Co. and Re General Company for Promotion of Land Credit highlighted that winding up orders are not a typical alternative to ordinary debt realization procedures but are a form of equitable execution.
• Propriety does not impact the power of winding up but its exercise.

Receiver's Authority

• According to clause (d) of rule 1 of Order XL of the Code of Civil Procedure, a Receiver can file a petition for winding up a company to realize properties, both movable and immovable, including debts.