Company Law and Secretarial Practice

Unit 7 – Winding Up Of Companies

Topics covered under this chapter

•Meaning •Kinds of Winding Up

Winding Up - Meaning •Winding-up of a company is a process of putting an end to the life

of a company. It is a proceeding by means of which a company is dissolved and in the course of such dissolution its assets are collected, its debts are paid off out of the assets of the company or from contributions by its members, if necessary.

•Winding-up is the process by which management of a company’s affairs is taken out of its directors’ hands, its assets are realized by a liquidator and its debts are realized and liabilities are discharged out of proceeds of realization and any surplus of assets remaining is returned to its members or shareholders.

Winding Up • Section 425 of the Companies Act, 1956 lays down the above three

modes of winding up and provides that the provisions of the Act with respect to winding up shall apply, unless the contrary appears, to the winding up of a company in any of these three modes.

• In every winding up, a liquidator is appointed to administer the property of the company and he or they must apply the assets of the company, first, in the payment of the creditors in their proper order, and then, in distributing the residue among the members according to their rights.

Modes of Winding Up A company registered under the Companies Act, 1956 may be wound up by any of the following modes:

1. Compulsory winding up by the Tribunal

2. Voluntary winding up, which may be either (a) Members’ Voluntary Winding Up (b) Creditor’s Voluntary Winding Up

Compulsory Winding Up by Tribunal

Grounds for Compulsory Winding Up (Sec 271)• Special resolution• Inability to pay debts• Just and equitable• Default in filling P/L account and B/S or Annual Return• Acted against Sovereignty and Integrity of India• Sick Industrial Company

Compulsory Winding Up by Tribunal

Petition for Winding Up

The following persons can file a petition:• The Company• Any Creditor• Any Contributory • The Registrar• Any person authorized by the Central Government under section 245• By the Central Government or State Government

Voluntary Winding Up

1. Members’ Voluntary Winding Up• Appointment of Liquidator• Board’s power to cease• Power to fill vacancy in the office of liquidator• Notice of appointment of liquidator to registrar• Duty of the liquidator to inform the Assessing Officer• General Meeting at the end of each year• Final meeting and dissolution

Voluntary Winding Up2. Creditor’s Voluntary Winding Up• Meeting of Creditors• Notice of Registrar• Appointment of Liquidator• Committee of inspection• Liquidator’s remuneration• Power of board to cease• Vacancy in office of liquidator• Meeting at the end of each year• Final meeting and dissolution