What do you understand by Winding Up of a Company? Write a detailed note on the Voluntary Winding up of a Company.

Question: What do you understand by Winding Up of a Company? Write a detailed note on the Voluntary Winding up of a Company. [BJS 2017]

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Answer

Winding up of a company refers to the process of closing down its operations and liquidating its assets in order to pay off its creditors and distribute any remaining assets to shareholders.

As per Halsbury’s Laws of England,

“Winding up is a proceeding by means of which the dissolution of a Company is brought about & in the course of which its assets are collected & realised; & applied in payment of its debts; & when these are satisfied, the remaining amount is applied for returning to its members the sums which they have contributed to Co. in accordance with AOA”.

According to Indian Law Companies Act, 2013, the winding up of a company can be done by two methods which are voluntary and involuntary.

Reasons for winding up are the following situations

When

i. a company is not able to pay its debts,

In Reliance Infocomm Ltd v. Sheetal Refineries Private Ltd, (2008) 142 Comp Cas 170 AP, the Andhra Pradesh High Court interpreted the term “inability to pay debts” as a situation where the company is commercially insolvent that is, its debts and liabilities to pay are more than its assets to run the company.

ii. the company has passed a special resolution to wind up the company by the tribunal,

iii. if the company has acted against the integrity and sovereignty of India, the security of the state, friendly relations with a foreign state, public order, decency, morality,

iv. tribunal has ordered for winding up,

v. on application by a registrar or any other person authorised by the Central Government with the opinion that there have been fraudulent affairs, unlawful objectives of the company or the persons involved are guilty of fraud, misfeasance or misconduct,

vi. the financial statements or annual returns of five consecutive financial years are not submitted to the registrar,

vii. it is just and equitable in the opinion of a tribunal to wind up the company.

The voluntary winding up of a company is the process by which a company is dissolved by its shareholders or members with the goal of liquidating the company's assets and distributing any remaining funds to shareholders. This process is initiated by a resolution passed by the members or shareholders of the company, and can be done in one of two ways:

Members' Voluntary Winding Up: This type of voluntary winding up is initiated when the company is solvent and able to pay its debts in full within a year of the start of the winding-up process.

Creditors' Voluntary Winding Up: This type of voluntary winding up is initiated when the company is insolvent and unable to pay its debts as they become due. In this case, the company's creditors vote on whether to wind up the company and appoint a liquidator to manage the process.

Once the resolution to wind up the company has been passed, the company will appoint a liquidator to manage the process. The liquidator's role is to take control of the company's assets, sell them, and use the proceeds to pay off the company's creditors. Any remaining assets will be distributed to shareholders in accordance with the company's articles of association.

It's important to note that the winding up of a company is a legal process and it must be done as per the laws of the country where the company is incorporated. The process may vary from country to country.

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