Winding UpLegal Environment of Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – manu_melwinjoy@yahoo.com

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Definition

• Winding up of acompany is theprocess of putting anend to its life. At theend of the winding up,the company will bedestroyed or dissolvedand will have no assetsor liabilities.

Winding up and Bankruptcy

• Winding up is differentfrom Bankruptcy. Inbankruptcy, theproperty of the debtorsis divested from him andrests in the officialreceivers or the officialassignees while thewinding up the propertyof the company is notdivested from it.

Reasons for winding up of a company

• The main object of thecompany for which it wasestablished has beenaccomplished.

• It has become impossible tocarry out the main objects ofthe company.

• The company has sold thebusiness or the undertaking toanother company or anindividual.

• The company is not in aposition to pay its debts in full.

Winding up by tribunal

Grounds for winding up by tribunal• Special resolution• Failure in holding statutorymeetings.

• Failure to commence or suspendits business

• Reduction of membership belowminimum

• Inability to pay debts• Just and equitable• Default in filing balance sheets,profit and loss account or annualreturns

• Acted against sovereignty andintegrity of India

• Sick industrial company

Special resolution

• If a company by a special

resolution resolved that it

may be wound up by the

tribunal, the tribunal may

pass a winding up order.

Failure in holding statutory meetings

• If a company makes default

in holding a statutory

meeting or in delivering a

statutory report, the court

may order winding up the

company.

Failure to commence or suspend its business

• If a company does not

commence its business

within a year from its

incorporation or suspends

its business for a whole

year, the tribunal may order

for its winding up.

Reduction of membership below minimum

• When the number of

members is reduced below

7 in the case of a public

company and below 2 in the

case of a private company,

the tribunal may order

winding up of the company.

Inability to pay debts

• Tribunal may order for

winding up a company if it is

unable to pay debts.

Just and equitable

• The tribunal may consider it

just and equitable that the

company should be wound up

if it is of that opinion. What is

just and equitable will depend

on the tests of each particular

case.

Default in filing balance sheets, profit and loss account or annual returns

• The tribunal may order for

winding up, if the company

has made a default in filing

with the registrar its balance

sheets, profit and loss account

or annual returns for any

consecutive years.

Acted against sovereignty and integrity of India

• If company has acted against

the sovereignty and integrity

of India, the security of the

state, public order, decency or

morality, the tribunal may

order for its winding up.

Sick industrial company

• If the tribunal is of opinion

that the company should be

wound up under the

circumstances specified in

Sec. 424 G, the tribunal may

order for its winding up.

Application of winding up

• According to section 439,the following can sendpetition to tribunal forwinding up of a company.

– Company itself.

– Contributories.

– Creditors.

– All or any of the aboveparties jointly or separately.

– Registrar

Voluntary winding up

Definition

• Voluntary winding up

means winding up by the

members or creditors of the

company without the

interference of the tribunal.

Definition

• The object of a voluntary

winding up is that the

company as well as the

creditors is left free to settle

their affairs without going

to the tribunal.

Circumstances in which company can be wound up voluntarily

• By passing an ordinary

resolution.

• By passing special

resolution.

By passing an ordinary resolution

• When the period for the

duration of a company by the

Article has expired, the

company in General Meeting

may pass an ordinary

resolution for its voluntary

winding up.

By passing special resolution

• A company may at any time

pass a special resolution

what it be wound up

temporarily.

Distinction between member’s and creditor’s voluntary winding up

Dissolution

• A company is said to be

dissolved when it ceases to

exist as a corporate body

capable of holding

property or of being sued

in any tribunal.

Difference between winding up and dissolution