The winding of a company is the end of its life and its property administration for the benefit of its creditors and members. You have to appoint a liquidator who will take control of the Company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.

Process of winding up of a private limited company

The Companies Act provides for 3 modes of Winding up

  • Compulsory winding up under the orders of the court
  • Voluntary winding up
  • Voluntary winding up under the supervision of the court

    Compulsory winding up
    Winding up on the orders of a court is called compulsory winding up. Application or petition may be filed to the court by the Company, a Shareholder, the Registrar, a Contributory, Central Government as the case may be

    The circumstances for winding up

  • By special resolution The General Meeting may decide to wind up the company by passing a special resolution. The court at its discretion may order for winding up.

  • Not holding a statutory meeting A company which has failed to hold its statutory meeting or submit its report may be ordered to be wound up by the court. This may be done on the petition of the Registrar or a contributory

  • Not commencing business If a business is not carried on or is suspended for one year and above, the court may order to wind up

  • Reduction in Membership When the number goes down below 7 (Public Companies) or 2 (Private Companies), the court may order for winding up.

  • Inability to pay debts To the creditors and to the decreed debts

  • Just and equitable grounds This is resorted to after giving due weight to the interests of the Company, its creditors, shareholders, its employees and in general public interest.

    Voluntary winding up

  • Special Resolution 3/4 majority the General Meeting should resolve to wind up the Company, Winding up commences from the date of the resolution. But the status and powers continue until finally dissolved. The business comes to a stop, except so far as is necessary for the beneficial winding up.

  • Notification Gazette and newspaper notification should be given within 14 days of the resolution.

  • Solvency test A majority of the Directors, with an affidavit, may make a declaration about the solvency of the Company and its capacity to pay within a maximum of 3 years. Such a declaration must be made by a special resolution and registered with the Registrar. Copies of profit and loss accounts, Balance Sheet and Assets and liabilities should also be filed. The objective is to make the winding up the members choice.

    If the above procedure is not followed it becomes creditor’s choice of voluntary winding up. If the Directors fail to pay within 3 years as per declaration then also it is creditors choice to wind up.
    In member’s winding up, a liquidator is appointed and his remuneration is fixed by the general meeting. This is reported to the Registrar. The liquidator should call a meeting of the shareholders within a year and present the accounts. He files the document with the registrar and the official liquidator. If the accounts are not prejudicial he reports to the court. The court is satisfied with the Report, orders dissolution.

    In the Creditors winding up, the official liquidator also calls a meeting of the creditors. The other procedures are the same as in Member’s winding up.

    Official Liquidator

    The Central Government by notification in the official gazette may appoint, attached to each High Court an Official liquidator and an official receiver attached to the district court. It is the duty of the official liquidator to conduct the proceedings in the winding up of the company and also to perform such other duties as directed by the court.

    Director’s Statement
    The Directors should submit a statement of the affairs of the Company, with all details of assets and liabilities etc., to the official liquidator within 21 days of the winding up order of the court. Within 6 months, the liquidator should submit a preliminary report to the Court furnishing all details and the progress made. He must submit accounts to the court twice a year and file a copy with the Registrar. He must send copies to the creditors and contributories.

    Effect on Proceeding against the Company

    After the winding up order is made by the Court, no suit or legal proceedings can be initiated by any person, against the company except with the permission of the Court.