For a variety of reasons, such as company closure, insolvency, promoter death, and so on, an organisation may need to be shut down. The owners or creditors of a corporation may initiate the winding-up process voluntarily, or a Tribunal may do so. The process of voluntary winding up a company is as follows:
1. SELLING OUT THE COMPANY
A voluntary winding up is similar to selling off a Private Limited Company. It is possible to do so by selling the company’s stock (selling the majority shareholding of the company). While technically not a winding-up, the stakes are transferred to another individual or company, and the largest owners are released from their stock and liabilities.
2. VOLUNTARY WINDING UP OF THE COMPANY
Some conditions must be met to voluntarily close a company. In the following circumstances, a company should be wound up voluntarily:
- Upon the expiration of the term for which it was created, or the occurrence of some event, the organization passes a resolution in its general meeting, or at the occasion of some circumstance that the articles allow for the termination of the organization.
- The company passes a special resolution (with at least 3/4th of the shareholders’ approval) to wound up the company voluntarily. The voluntary winding-up begins on the day the above-mentioned resolutions are passed. In the same meeting, the corporation should assign a Company Liquidator. A majority of the creditors (in terms of value) must also approve such a selection.
Below are the measures used in voluntary winding up:
- As previously said, the organization approves a resolution at their general meeting. However, for the company to be winding up, the majority of the directors would agree.
- The Trade Creditors must therefore agree to the company’s winding up. Trade creditors must agree that if the company is wound up, they will be released from their obligations.
- The company must file a Declaration of Solvency, which must be approved by the company’s trade creditors. In the Declaration of Solvency, the Company must demonstrate its legitimacy.
- The liquidator may conduct the winding-up process and file a winding-up report on the assets, properties, debts, and other matters. The report must be presented to the company’s general assembly for consideration and approval of a resolution for the company’s dissolution. A copy of the company’s final reports and decisions must be sent to the ROC by the company liquidator.
- The liquidator of the company shall file an application to the Tribunal for a dissolution order. The Tribunal must issue a dissolution order within 60 days of receiving the application if it is satisfied with the winding up. The ROC should get a copy of the final command.
Each of the above processes must be presented and filed in a specified format, and even after the company is wound up, the name of the company cannot be taken by any other applicant for a period of two years.
Companies (Winding-up) Rules, 2020, specify the format for different modes as well as the detailed process for winding up.
3. TRIBUNAL’S PROCEEDINGS
The Tribunal will hear the appeal on the scheduled hearing date and accept the petitioner’s and respondent’s objections and responses. A temporary liquidator can be appointed by the Tribunal. Form WIN 8 must be used to appoint the temporary liquidator. Form WIN 11 must be used to make the winding-up order. The order of winding up must be defined:
- It is the responsibility to have full audited books of records up to the date of the order.
- Give the Company Liquidator a particular date, time, and place.
- Surrender the properties and the assets’ records to the liquidator of the company. The Company liquidator shall take custody of all assets and effects, actionable claims, and the company’s books and papers upon receiving a winding-up order.
- The Company Liquidator will file an appeal with the Tribunal for the company’s termination after the company’s activities have been properly wound up. If the tribunal determines that an order for the company’s dissolution is fair and appropriate under the circumstances, make an order that the company is dissolved as of the date of the order. The company will be closed down.
If the tribunal determines that the records are in order and all of the relevant enforcement requirements have been met, the tribunal will issue a dissolution order within 60 days of obtaining the submission. The registrar will then send a report to the Official Gazette announcing that the company has been terminated after the tribunal has passed its decision.
The process of bringing a company’s life to an end and administering its assets for the benefit of its members and creditors is known as winding up. It’s the final stage, when a company’s life comes to an end. The basic goal of winding up is to realise the company’s assets and make fair payments on its obligations. As a result, winding up is the procedure through which a company’s management terminates its operations.