THE COMPANY ACT 1994 : WINDING UP

The Company Act 1994

Winding Up

Winding up of a company represents the process whereby its life is ended and its property administrated for the benefit of its creditors and members.

  • Professor Gower

Characteristics

  1. It is the termination of legal existence of a company.
  2. It stops the business.
  3. Through the termination of the company all the assets of the company are collected.
  4. Through liquidation company has to distribute the assets between the creditor and shareholder.

Modes of Winding Up

  • There are 3 modes of winding up:
  1. By the court
  2. Voluntary winding up
  3. Subject to the supervision of the court
  • Sec 234

Compulsory winding up by the Court

  • If the court order to wind up a company according to the special resolution of shareholders or by the application of creditors or contributors or by the application of the registrar in case of failure of doing certain formality by the company or for some other logical reason, it is called compulsory winding up by the court.

Compulsory winding up by the Court

  • In this case all formalities are done under the guidance of court.
  • Government appoints a Government Liquidator for all supervision.

Causes –

  • According to the section 241 of company act 1994, the company may be wound up:
  1. If the company has by special resolution resolved that the company is wound up by court.
  2. If default is made in filing the statutory report or in holding the statutory meeting.

Causes-

  • According to the section 241 of company act 1994, the company may be wound up:
  1. If the company does not commence its business within a year of from its incorporation or suspends its business for a whole year.
  2. If the number of members is reduced in the case of private company below 2 and for public company below 7.

Causes –

  • According to the section 241 of company act 1994, the company may be wound up:
  1. If the company is unable to pay its debts.
  2. If the court is of opinion that it is just and equitable that the company should be wound up.
  • The object of a voluntary winding up is that the company and its creditors shall be left to settle their affairs without coming to the court and to provide them with every facility for applying the court.

There are 2 types of voluntary winding up:

  1. Member’s voluntary winding up
  2. Creditor’s voluntary winding up

If a company which declared its capacity of paying of its debt, take the decision to wind up the company under its control it in member’s voluntary winding up.

  • Section 290 (I)
1. Member’s Causes-
voluntary
winding up • A company may be wound up
2. Creditor’s voluntarily:
voluntary winding up 1. When the period (if any) the duration of
the company expires by the articles or if any occurrence occurs for which articles provide the winding up of the company or in general meeting that has passed a resolution to winding up the company.

 

  1. Member’s Causes- voluntary winding up • A company may be wound up voluntarily:
  1. Creditor’s voluntary winding up
  2. If the company resolves by special resolution that the company be wound up voluntarily.
  3. If the company cannot continue its business for its liabilities, then it is advised by the extra ordinary resolution to wind up.

Sometime winding up occurs without declaration of the capability of paying the debt by the directors. These are called creditor’s voluntary winding up.

  • The shareholders make the resolution, but the creditors do the formalities
  • When a company has resolved to wind up voluntarily the court may make an order that winding up will be occur under supervision of court and with such liberty to creditors or contributors or others.

Causes-

  1. If the formalities of winding up is not fulfilled properly.
  2. If the resolution is resolved by fraudulent.

Causes-

  1. If the court gets proof of unlawful distribution of company’s assets.
  2. If the court thinks it logical for any other reason.
  • Liquidator is appointed by the company or by the court to guide the liquidation process of the company.
  • The liquidator in a winding up by the court has the power to do the following things with the sanction of the court.
  1. To institute or defend any suit, prosecution or other legal proceeding, civil or criminal in the name and on behalf of company.
  2. To carry on the business of the company so far as may be necessary for the beneficial winding up of the company.
  3. To sell the immovable and movable properly and actionable claims.
  4. To raise on the security of the assets of the company any money requisite.
  5. To do all other things as may be necessary for winding up.
  6. To appoint any advocate, attorney to assist him.
  7. He can pay any class of creditor in full, make any compromise or arrangement with creditor.
  • The liquidator in a winding up by the court has power to do the following things without taking special permission from the court-
  1. To all the acts and to execute in the name and on behalf of the company.
  2. To inspect the records and return of the company on the files of registrar.
  3. To prove, rank, and claim in the insolvency of any contributory for any balance against his estate and to receive dividends in the insolvency.
  4. To draw, accept, make and indorse any bill of exchange, hundi or promissory note in name and on behalf of the company.
  5. To appoint an agent to do any business which the liquidator is unable to do himself.
Factors Member’s Creditor’s
Application It applies to solvent companies and a declaration of solvency can be made. It applies to the insolvent companies and no declaration of solvency can be made.
Creditor’s

meeting

Not necessary to have. There must be a creditor’s meeting immediately following the member’s meeting.

 

Factors Member’s Creditor’s
Appointment of liquidator By the members. By members and creditors both; but if they nominate different persons, the creditor’s nominee becomes liquidator.
Committee of Inspector There is none. There may be one.