The winding-up of a company or company’s liquidation takes place when the company is in loss and has to pay off all the debts to the creditors. The winding-up of a company is a process in which assets of the company has to be sold in order to make the remaining payment. The company, after solving all its liability, has to distribute the excess among the shareholders and then formally dissolved or cease to exist. Here below is a discussion about the winding up of a company by the tribunal which falls under section 357 of the Companies Act 2013.
Winding up of a Company
Section 270 of the Act of 2013, has mentioned the winding-up of a company by two ways either by the tribunal or voluntarily by the company itself. The company in the first case gets an order by the court for winding of a company, and in the second case, shareholders or the creditors themselves allows company’s liquidation in case of inability of paying debts or having a loss in business.
Why winding up of a Company by the tribunal?
The company may require to wound up by the tribunal under section 271 under the following circumstances:
- In case the company does not pay the debts, the debt of the creditor exceeding Rs 1 lakhs is due and unpaid by the company within 21 days from the due date, or any execution decree is passed in favour of the creditor or tribunal has a reason that company will not pay off any debts then company would be liable for winding up.
- In case a company has made the provisions by passing a special resolution that wound up is made by the tribunal.
- In case of sick companies if no revival and rehabilitation is done, then tribunal may order for the winding up of a company.
- In case the company is formed in a fraudulent manner, or it has reason to believe that the activity of the business is conducted fraudulently then that company is liable to be wound up by the tribunal.
- In case the formation of the company is for any unlawful purpose, or the management of the company is guilty of misconduct or misfeasance, then winding up is necessary by the tribunal.
- In case the company fails to submit annual returns and financial statements of the last five financial years continuously then the registrar made the company defaulter n liable for winding up.
- If the tribunal has the opinion that winding up of a company is necessary for the good faith of the company.
Who can file the petition for winding up of a company?
Subject to the provisions of Section 272 of the Act the following can file present the petition for winding up of a company:
- The company
- Creditors of the company holding debentures might be a trustee or not a trustee have appointed
- Shareholders or the contributors of the company who is a holder of the paid-up shares
- Contingent or prospective creditors whose debts are unpaid
- The person authorised on behalf of the State or central government
Read our article:Functions of a Company Secretary as per the Companies Act, 2013
The procedure of winding up of the company by the tribunal
- The petition of the winding up of a company is admitted before the tribunal if it is accompanied by the statement of affairs as prescribed in the form.
- The creditors require the permission of the tribunal before making a petition for the winding up. Tribunal may not admit the petition of winding up of the company unless there is a prima facie reason for the liquidation of the company.
- The copy of the petition also has to be filled before the registrar, and then the registrar has to submit his opinion before the tribunal within 60 days of the admission of the petition in the tribunal under section 272.
- The petition is filled as prescribed in form NCLT 1 and attachments in form NCLT 2 along with the affidavit of verification in form NCLT 6 according to Rule 34
- The tribunal shall pass an order of winding up under section 273 within 90 days of the presentation of the petition and can make an interim order for the appointment of the liquidator. A notice is served to the concerned persons for the appointment of the provisional liquidator.
- In section 274 if the tribunal has prima facie reason to pass an order for winding up of a company then it can do so and further the objection can be raised within 30days of the order. The directors have to submit the books of accounts to the liquidator within 30 days of the order passed. The director is liable for the fine if he fails to do so under this section.
- The official liquidator has the right to file a declaration under section 275 within seven days in case of the conflict of interest regarding his appointment. The same liquidator can also be removed in case of misconduct, fraud, misfeasance or professional incompetence under section 276.
- The registrar under section 277 shall notify in the official gazette about the company being wound up. The official liquidator within three weeks shall make an application to the tribunal for the constitution of the Winding-up Committee which provides the report on monthly basis and then a final report is submitted to the tribunal after the dissolution of company.
- After the winding up of a company, no suits and legal proceedings can be entertained against the company as suggested under section 279. The tribunal has jurisdiction to dispose of cases of the pending cases of the company under section 280.
- The liquidator has to submit the final report under section 281 to the tribunal within 60 days of the winding up of a company. Under section 282 further, the entire proceedings for the dissolution have to be completed in a specified time.
- The company is liable to sell all the assets and pay to creditors first and remaining to shareholders. If the company has involved in fraud, then criminal proceedings will take place against the persons involved in the fraudulent activities.
Commencement of the winding up of a company
- Under section 357, the winding up of a company takes place by the presentation of the petition to the tribunal.
- The resolution than can be passed by the company for the voluntary winding up and the commencement of the winding-up shall be deemed as soon as the resolution has been passed.
- If the tribunal has reason to believe that no fraud o mistake has been made then the procedure of voluntarily winding up is considered to be valid as per the provisions.
- In any other case, the winding up of a company is considered as soon as the presentation of the petition before the tribunal.
Other conclusive points
The winding by of a company is done under section 361 is done by summary procedure where the assets are below one crore. The respondents can also show cause to stop liquidation of a company on the hearing date by filling NCLT 5 form under Rule 37. The party has to make an appearance before the tribunal through a representative. Therefore the Corpbiz has a team of experts for providing guidance and can appear as representative after filing NCLT 12 under Rule 45.
Read our article:Annual Compliance Checklist for Private Limited Company