INTRODUCTION TO WINDING UP OF A COMPANY
In case of winding up and dissolution, along with the Companies Act, 2013, the Insolvency & Bankruptcy Code, 2016 is also applicable to provide time bound resolution and eliminate the longer procedures along with protection of interest of creditors from insolvent company initiating for winding up procedures. One of the hallmarks of a reliable economy is the time that is taken for the winding up of the company. In simple terms winding up of the company is the process of closing down the existence of the company or LLP. Accordingly, Section 2(94A) of the Companies Act, 2013 specifies that, “winding up” means winding up under this Act or liquidation under the Insolvency & Bankruptcy Code, 2016. The procedures of winding up of the company are in the hands of the liquidator and not the board of directors of the company.
Most of the times the terms winding up and dissolution are considered as interchangeable but these two terms have very important differences which have to be taken into consideration. Where winding up is considered as the first stage of ending of the legal existence of the company, in this stage the assets of the company are realized and the liabilities and surplus if any is paid off to the contributories. Whereas dissolution is the final stage after completion of the winding up of the company process and by act of law the legal existence of the company comes to an end. Winding up need not necessarily lead to dissolution in all the cases. A company which is wound up can be taken over by the other company or might get amalgamated with other entity company leading to it’s winding up. On the other hand, dissolution ends the company, so the company cannot be taken over or amalgamated as it is not existing in the eyes of law.
As winding up is a long-term procedure, the integration of the company law and the bankruptcy code simplifies the procedure of winding up through different modes and procedures. Winding up of the company is also a legal mechanism of permanently movement down a company.it is a methodology by that the company existence involves associate end post that the corporate goes positive dissolution to a lower place the investigation of a Liquidator. The Liquidator monitors and administers the Company assets throughout this necessary stage of the Company amount, to create positive the stakeholders interest is not hampered. Ultimately, dissolution kicks in, whereby the company is dissolved and thus the name is stricken off by the Registrar of firms.
Reasons for winding up of the company:
Company by Special Resolution resolves that it should be wound up by tribunal – Petition by company.
If the company has acted against the integrity of the Country, security of the state, friendly relations with foreign states, public order, decency or morality- petition by Registrar or Government.
If the company has defaulted in filing its financial statements or annual reports with the registrar for immediately 5 consecutive financial years.
Where the Tribunal comes in to conclusion that the affairs of the company are been conducted in a fraudulent manner or the company was formed for a unlawful purpose or the directors for a fraud or misfeasance or misconduct.
If the Tribunal is of the opinion that it is just equitable that the company should be wound up.
Modes of Winding up of the Company:
By National Company Law Tribunal (NCLT) also described as compulsorily winding up.
Voluntarily winding up.
Winding up by Central Government under Summary Procedure.
First sense- It refers to a person who is liable to contribute to the assets of a company at the time of its winding up (upto the unpaid amount on the shares held by him). All the members of the company who have not paid the full amount on their share become contributories.
Second sense – The term is used to cover all members of the company, including the holders of fully paid- up Shares. A contributory is a person who would be entitled to a share in the surplus assets , if any, of the company at the time of winding up. The act uses the term contributory in both the connotations. S 2(26) lays down that a contributory is a person who is liable to contribute towards the assets of the company in winding up, it also clarifies that even the holder of fully paid up shares is also considered to be a contributory, but he would have no liabilities of a contributory.
A liquidator is a person or entity that liquidates something—generally assets. When assets are liquidated, they are sold on the open market for cash or other equivalents. The liquidator is legally empowered to act on behalf of the company in various capacities. A liquidator refers to an officer who is specially appointed to wind up the affairs of a company when the company is closing—typically when the company is going bankrupt. Assets of a company are sold by the liquidator and the resulting funds are used to pay off the company debts. In some jurisdictions, a liquidator may also be referred to as a trustee, such as a bankruptcy trustee.
Winding up and dissolution of a company are two different terms. winding up of a company is a smaller concept as compared to dissolution of a company. The dissolution of a company is the last stage after the process of winding up by a liquidator. The process of dissolution of a company resulted in the termination of a legal entity from the company. It is the last process of closure of a company. In this process, A company comes to an end and all the acids and the property of the company get redistributed. The affairs of the company gets also terminated after the dissolution of a company.
Winding up of a company is judged by the Tribunal and the procedure for winding up of a company in India which is purely a judicial function. There is a liquidator who carries off and administers the winding up process. After winding up, the dissolution process takes place. The dissolution of a company is recorder by registrar of companies. This is a purely administrative function and do not involve any role for the liquidator. Dissolution is a necessary step following the winding up of a company.
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