All about Winding up of a company

In this blog information on what is winding up of a company, Modes of winding up of a company, and strike off a company will be explained. The legal process of winding up a business and ceasing all operations is known as winding up. The Company’s existence comes to an end after it is wound up, and the assets are managed to ensure that the interests of the stakeholders are not jeopardized. The Company is formally dissolved and ceases to exist once it has been liquidated.

What is winding up of a Company?

The process of bringing a company’s life to a close and administering its assets for the benefit of its members and creditors is known as winding up. A liquidator is appointed to liquidate the company’s assets and properties.

If there is any surplus of assets after the debts have been paid, they will be dispersed among the members according to their rights. The fact that a corporation is winding up does not necessarily imply that it is bankrupt. A firm that is perfectly solvent can be wound up with the permission of its members at a general meeting.

What are the Reasons for a Company’s Dissolution?

• If a company fails to file its compliances on time, it will be fined and the directors will be barred from founding another company. In this way, it is preferable to wind up an inactive corporation in order to avoid future fines or liability.
• The Companies Act establishes a legal entity known as a private limited company. As a result, a business must maintain frequent compliance throughout its life cycle. If a company fails to do so then a company can wind up or strike off.
• In comparison to maintaining compliances for a dormant firm, it is actually to re-establish a corporation when the time comes.
• The procedure of winding up is for a company that is no longer in operation and wants to avoid compliance obligations.
• A corporation that complied with all regulations can easily be liquidated. If there are any outstanding complaints, they must be resolved first. It should be remembered, however, that all registrations must be surrendered as well.

Modes of Winding up of a Company

1. Voluntary Winding-up

The Company can be winding up in this way by passing a special resolution or a resolution at a general meeting.

Below are the reasons for the Voluntary winding up of a company

• The Company voluntarily decided to wind up
• If there is any unlawful activity done by a company then under AOA provides the company to wind up their business.

Procedure to Voluntary Winding up of a Company

• Pass a resolution at a special resolution for a voluntary decision or general meeting for the AOA events and a creditors’ meeting.
• Declare the Company’s solvency for settling overdue obligations.
• ROC must receive the auditor’s report as well as a declaration of solvency, and the registered valuer’s report (in the case of a valuation of the Company’s assets).
• Appoint a Liquidator to complete the process. The company needs to start a process for winding up as soon as date of resolution is passed.
• The liquidator will compile a winding-up report and convene a general meeting of the Company to lay final winding-up accounts.
• A resolution will be passed if the majority of members agree;
• A Liquidator must send a copy of the statements to the ROC and file an application with the report with the Tribunal; the Tribunal will issue an order for the Company’s winding up after evaluating the circumstances.
• After reviewing the circumstances, the Tribunal will issue an order for the Company’s winding up; the liquidator must transmit a copy of the order to the ROC (Registrar of Companies) within 30 days, or face a penalty.
• When the ROC is satisfied, it confirms the Company’s winding up and strikes its name from the Register of Companies; the ROC then sends the notice to be published in the Indian Official Gazette.

2. Winding up of a company by Tribunal

Below are the reasons in which a company needs to stop its activity and forcefully wind up their business

• Unpaid debts of the company; A special resolution for winding up was enacted.
• Fraudulent act or misbehavior on the part of the Company or those under its control.
• Unlawful activity committed by management or its firm.
• The Tribunal believes that the Company should be wound up.
• Five consecutive years of failure to file financial statements or an annual return with the Registrar of Companies.

The procedure of winding up a company by Tribunal

• A petition can be filed with the Tribunal, along with the Company’s Statement of Affairs.
• The petition will be accepted or rejected by the Tribunal based on some factors.
• If a petition is filed by any legal entity excluding a company, than the Tribunal may order the Company to file an objection, and it needs to be submitted before 30 days time period with the statement of affairs.
• The Tribunal will appoint a Liquidator to oversee the winding-up process. The liquidator will assist and supervise the liquidation proceedings (taking over of assets, review, and examination of books of accounts, sale of assets, any other function, etc.). He or she will prepare a draught report for the winding-up committee’s approval;
• Once the draught report has been approved, The liquidator must submit the final report to the Tribunal for a winding-up order.
• A liquidator is a person who specializes in liquidating The liquidator must send a copy of the order to the ROC (Registrar of Companies) within 30 days.
• When the ROC is satisfied, it confirms the Company’s winding up and strikes its name from the Register of Companies; the ROC then sends a notice to be published in the Indian Official Gazette.
• Apart, from all this if there is a mandatory winding up of a company then there is a need for other forms and requirements needs to be fulfilled by the Company.

3. Strike off a company

The Companies Act of 1956, deals with a defunct company’s strike-off provisions. Any dissolved business wishing to have its name struck off from the Registrar of Companies’ registry can do so by filling out Form FTE and submitting it to the ROC in accordance with the ROC’s ‘FAST TRACK EXIT MODE’ Guidelines.

Below are the points in which a company can be struck off

• A firm that has neither obligations nor assets.
• Any company that does not start a business activity after its incorporation can be struck off.
• If a company has not done any business for at least a year then the company can be struck off.

The procedure of a Strike off a company

• Send an application in Form FTE to the ROC (Registrar of Companies) along with the required government fee (payable online).
• The ROC reviews the request and notifies the Company through email that its name has been removed from the Register of Companies. It further indicates that, without any contrary information, the winding-up operations will begin within 30 days.
• It publishes the names of applicants and the date on which they submitted an application on the MCA portal, giving stakeholders 30 days to file any objections to the winding up.
• The Registrar of Company (ROC) informs the Income Tax Department of the winding-up application. It allows the department 30 days to raise any objections to the winding up; ROC authorizes the winding up of the Company and strikes its name from the Register of Companies if it is entirely satisfied.
• The Registrar of Company (ROC)  issues a notice for publication to the Indian Official Gazette.

Know More: FAQs on Strike Off Company in India

Conclusion

Companies can be wound up in a variety of ways, each of which takes a significant amount of time and effort. The cost of the proceedings may potentially be prohibitively expensive. Many corporations were difficult to wind up in the past because the courts were already swamped with other matters. With the introduction of the Insolvency and Bankruptcy Board, as well as the National Company Law Tribunal, the process of winding up corporations has been much easier, and the time necessary to complete the process has decreased.