WINDING UP

Jot Swaroop Singh MBA

MEANING OF WINDING UP

A process where a company is dissolved. Here the assets of the company are disposed of

, the debts are paid off out of the realized assets , and the surplus , if any is then distributed among the members in proportion to their holdings in the company.

Also known as liquidation.

TYPES OF WINDING UP

Compulsory Winding Up Voluntary Winding Up

1. Members voluntary winding up

2. Creditors voluntary winding up Winding up under the supervision of the court.

COMPULSORY WINDING UP

The winding up of a company under the order of a court is called the compulsory winding up. Sec 433.

Following circumstances of winding up by order of court—

Failure to commence business within one year of its incorporation.

Reduction in membership below statutory minimum.

Inability to pay debts (Current Liabilities). Default in holding statutory meeting and in

delivering the statutory report to the Registrar. Section 218 - the company is unable to

pay its debts (the most common ground) .

VOLUNTARY WINDING UP

Voluntary winding up means winding up by the members or creditors of a company without interference of the court.

A company may be winding up voluntarily; By Passing an ordinary resolution in the general meeting if the

period fixed for the duration of the Company has expired or some event on the happening of which the Company has to be wound up.

By Passing a special resolution for any reason whatsoever. Within 14 days of passing any resolution it must be advertised

in the official gazette and in some important newspaper circulating in the area of the registered office of the Company.

1.MEMBERS VOLUNTARY WINDING UP

This is where the shareholder of company decide to put company into liquidation, and there are enough assets to pay all the debt of the company i.e. company is solvent.

Members voluntary winding up takes place only when the company is solvent .

Its initiated by the members and is entirely managed by them.

2. CREDITORS VOLUNTARY WINDING UP

Where the company proposes to wind up voluntarily and the directors are not in a position to make the statutory declaration of solvency ,the winding up is referred to as creditors voluntary winding up.

WINDING UP UNDER THE SUPERVISION OF THE COURT.

Court only supervises winding up procedure. Resolution for winding up is passed by members

in the general meeting. Liberty granted to creditors, contributories or

others to apply to court for some relief. The court may also appoint liquidators, in

addition to already appointed, or remove any such liquidator. The court may also appoint the official liquidator, as a liquidator to fill up the vacancy.

PRIORITY IN DISPOSING LIABILITIES (SEC. 529 A & 530)

When the company is wound up, by any mode, the liabilities shall be discharged in following priority.

1. Workman's dues. 2. Debts due to secured creditors, in case of insolvency. 3. All , taxes, cesses and rates due from the company to the central

government or a state govt. 4. All wages and salary of any employee due within four months.

5. All holiday remuneration becoming payable to any employee. 6. All such debts shall be paid in full. If assets are insufficient to

meet them, they shall abate in equal proportions.

FEW CASES OF WINDING UP

Object of the company cannot be achieved

Re German Date Coffee Co

F: The company was formed to manufacture a coffee substitute out of dates. Failed to acquire the patent for that purpose.

H: The company was wound up because it was set up for a specific purpose and that purpose failed to be achieved.

Fraud or misconduct :

Loch v John Blackwood Ltd

F: Directors failed to provide the minority members with financial reports as required by the law. The members petitioned for winding up.

H: Allowed the petitioned.

Re Tivoli Freeholds Ltd

F: The object of the company was to carry on entertainment business. One of the theatres was damaged by fire. The theatre and the land were sold and the money was used to purchase shares of other companies. Members objected.

H: Company was wound up on the ground of just and equitable.

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