Before Insolvency & Bankruptcy Code, 2016, (IBC, 2016), winding up of companies was only dealt under the Companies Act, 2013. But now, Companies can be wound up under the provisions of either Companies Act, 2013 or Insolvency & Bankruptcy Code, 2016 according to the facts and circumstances of the case.
Provisions of Winding up of a company –
|Companies Act, 2013||Sections 230 & 231 and 270 to 365|
|Insolvency & Bankruptcy Code, 2016||Sections 33 to 54 and Section 59|
What is Winding up of a Company?
Winding up of a company is a process whereby the company’s life is ended and the company’s administrator sells all the assets of the company and then distributes such proceeds among creditors and shareholders.
What are the modes of winding up of a Company?
There are following two modes of winding up of a company –
What is Voluntary winding up of a company?
A voluntary winding up of a company is a self-imposed wind up. Meaningly, Company’s shareholders mutually agree by passing a special resolution to wind up the affairs of the company. Companies Act, 2013 has prescribed certain circumstances under which a company can opt for voluntary liquidation of the company.
In the case of Voluntary winding up, board of directors appoints a liquidator to take a charge over the company and to complete the process of winding up and dissolution of the company.
What is the process of voluntary winding up of a company?
1. Board Meeting –
The first step in Voluntary Winding up of a Company is to convene a Board Meeting whereby the directors of the company will consider the matter of winding up of the company. If they agree to wind up the company then they will proceed with further steps-
2. Declaration of Solvency –
Thereafter, the majority of Board of Directors shall make a declaration of solvency in Form GNL-2 in order to voluntarily wind up the company.
This declaration has to be duly verified by an affidavit and it is made to state that the company has no debt liability or that it has certain debts and it is in a sound position to pay off its all debts from the proceeds of all the assets of the company to be sold at the time of Voluntary liquidation.
Board of Directors has to accompany the following documents with the affidavit –
- Audited Financial Statements of immediately preceding 2 years
- Record of all Business Operations of immediately preceding 2 years
- Report of valuation of assets of the company by the Registered Valuer
- Current Financial Position of the Company
3. Board Meeting Agenda –
Other than making Declaration of Solvency, the Board must consider the following actions –
- To appoint a liquidator to complete the winding up process
- To fix day, date, and time to convene General Meeting of Shareholders to pass special resolution regarding voluntary winding up
4. Serve Notice for General Meeting
The next step in Voluntary winding up is to serve the notice of general meeting stating the agenda for such meeting on all the shareholders.
5. General Meeting of Shareholders –
Thereafter, shareholders shall hold a general meeting within 4 weeks of Declaration of Solvency. The agenda of such meeting shall be to pass the following resolutions –
- Special Resolution – for liquidation of the company
- Resolution – for appointment of liquidator
- Resolution by Creditors – if company has creditors then the creditors holding 2/3rd of the debt shall also pass a resolution within 7 days of shareholders resolution.
By now, the voluntary liquidation proceeding is deemed to have started from the date of passing of such shareholders resolution. Thus, the powers of directors, Key Managerial Personnel, and of partners of company’s debtors shall be deemed to have ceased and vested in liquidator.
6. Filing of Resolutions with ROC and IBBI
The next step is for liquidator of the company. Liquidator has to file shareholders and board resolution with Registrar of Companies and Insolvency and Bankruptcy Board of India.
7. Liquidator shall become In-Charge of the Company
Now, the liquidator shall take the charge over the company. So, liquidator will observe the rest of the steps involved in voluntary winding up of the company. It includes –
- Realization of company assets
- Settlement of company’s dues and debts
- Distribution of proceeds among shareholders (liquidator can consult any shareholders regarding such distribution)
8. Public Announcement – Form A
Liquidator has to make public announcement about winding up within 5 days from the date of his appointment in Form A of Schedule 1. It is made to call stakeholders to make claims within 30 days from the date of commencement of liquidation.
Such announcement shall also be published in –
- One English Newspaper
- One Regional language Newspaper (place of registered office)
9. Settlement of Claims
After receiving claims and objections, Liquidator shall verify such claims. For this, he can either reject or accept the claims and settle them accordingly.
Liquidator has to prepare a list of stakeholders making claims within 45 days from the last date for receipt of claims and objections. Such list shall have following particulars –
- Details of stakeholders
- Amount of claim admitted
- Details of secured or unsecured debts
- Evidences or proofs for claims admitted or rejected
10. Preliminary Report –
After 45 days from the date of liquidation commencement, the liquidator shall prepare a preliminary report stating –
- Company’s Capital Structure
- Estimates of assets and liabilities as on the date of liquidation commencement
- Liquidator’s intention to make further inquiry into the affairs of company such as promotion etc.
- Proposed plan of action for completing liquidation process
- Estimated Liquidation costs
11. Bank account in scheduled bank
Thereafter, liquidator shall open a bank account in company’s name (followed by “in voluntary liquidation) in a schedule bank in order to receive all the due money and to meet the liquidation cost.
12. N.O.C from Tax Authorities
Liquidator shall then obtain a No objection certificate from the concerned tax authorities.
13. Realization of Assets
Thereafter, liquidator shall realize all the assets of the company and all the money realized therefrom shall be deposited in above-mentioned bank account.
14. Distribution of proceeds
Now, the money realized from the realization of assets shall be distributed among the shareholders within 6 months from the receipt of such amount. Such distribution shall be made after deducting the liquidation cost.
15. Duration to complete liquidation process
Liquidator shall complete the liquidation process within 12 months from the date of commencement.
16. Final Report
Liquidator shall prepare a final report on the liquidation proceedings of the company when the liquidation process gets completed and he shall state the required particulars on the same. Then, liquidator shall file such final report before the Registrar of Companies and with IBBI.
17. NCLT Proceedings
Application: Once the affairs of the company are absolutely wound up then liquidator shall make an application before National Company Law Tribunal for dissolution of the company.
Order: Then, NCLT shall pass an order on such application that company shall stand dissolved from the date of order or from the date mentioned in the order.
Filing: then liquidator shall file a copy of order with ROC.
18. Preservation of records
Last step in voluntary winding up of company is that the liquidator shall preserve all the required reports, registers and books of accounts for at least 8 years from the date of dissolution of company.
Voluntary Winding up of a company is indeed a tough task. We hope all of your doubts relating thereto are cleared and in case you are looking for a professionals’ team for undertaking the winding up task on your behalf then you are at the right platform.