Company Winding up

1. CompanyWinding up http://articles.economictimes.indiatimes.com/2015-03-25/news/60475273_1_hiranandani-palace-gardens-tata-capital-manilal-kher-ambalal-co http://www.firstpost.com/business/corporate-business/saga-of-troubles-hircos-legal-woes-mount-as-hdfc-plans-chennai-project-auction-2005481.html http://articles.economictimes.indiatimes.com/2013-07-26/news/40815133_1_term-loan-hiranandani-group-hirco-plc http://businesstoday.intoday.in/story/karnataka-high-court-summons-vijay-mallya-in-winding-up-case/1/198618.html http://www.livemint.com/Companies/Fnba0gdvT8oUa3kLZzXmnL/Sahara-Beginning-of-the-endgame.html

2. MEANING : Winding up of a company is the process whereby its life is ended and its property administered for the benefit of its creditors and members.

3. An administrator is called a ‘liquidator’, is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their respective rights.

4. MODES : Modes of Winding up – A company may be would up in any one of the three ways, (I) Compulsory winding up ie., by Tribunal (II) Voluntary winding up - Members’ Voluntary winding up - Creditors’ Voluntary Winding up

5. Winding up byTRIBUNAL http://www.accountancyage.com/aa/news/2402871/pwc-winds-up-last-remnants-of-enrons-european-operations

6. (I) Winding up by Tribunal Grounds for Compulsory Winding up : 1. Special resolution: If the company has, by special resolution, resolved that the company be wound up by the Tribunal; 2. Default in delivering the statutory report to the Registrar/ holding statutory meeting (Registrar or contributory) 3. Failure to commence, or suspension of business - wind up if business not started in 1 year - wind up if business remains suspended for 1 year, and may not, if : - reasonable prospects to start business/about to start - good reasons for delay/valid reasons 4. Reduction in membership 5. Inability to pay its debt (i) demand for payment neglected (debt more than 1 lakh , 21 days or 3 weeks have expired and payment not paid) (ii) decreed debt unsatisfied (iii) commercial insolvency 6. If the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality; 7. if the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years;

7. 8. Just and Equitable 1. When the substratum of a company is gone (i) Basis of survival is gone (e.g a capsized ship) (ii) Main object of the company has failed (e.g German Date coffee co.) (iii) When the business is being run on losses (iv) Where the existing assets are insufficient with respect to liabilities 2. Interest of minority is being affected 3. Where there is a deadlock in the management 4. Where public interest is to be taken care of 5. Where the company was formed to carry out fraudulent or illegal business 6. Where the company is mere a bubble

8. CASE: A company’s trade has been suspended temporarily owing to the trade depression with bona fide intention to continue its operation when conditions improve. A petition was made to the Court for winding up of the company. As a judge, will you wind up the company?

9. No, the company won’t be wound up by the Court and Court will dismiss the petition as under the given circumstances, the company is unable to run business temporarily due to uncontrollable reasons . So it is not just and equitable to order winding up.

10. DEFUNCT Company: When the company is not carrying on business or when it is not in operation.

11. Who can apply for Winding-up of company ?? 1. Petition by the company - after passing a special resolution - companies prefer voluntarily closure 2. Petition by any creditor or creditors http://indianexpress.com/article/business/companies/more-winding-up-petitions-pour-in-against-vijay-mallyas-ub-holdings/ -by the creditor who has actual or contingent claim (for interest amount also) - Central/State Government - by prospective creditor - legal representatives of a deceased creditor - by secured creditor - by debenture holder 3. Petition by any contributory or contributories (includes holder of fully paid up shares) GROUNDS : - the membership is reduced below the statutory minimum, or - he is an original allottee of shares, or - he has held his shares for any 6 out of the previous 18 months, or - the shares have devolved on him through the death of former holder / joint ownership of shares

12. 4. Petition by all or any of the prior parties whether together or separately - by all of above three together or separately 5. Petition by the Registrar (after approval from CG) - failure to give statutory report (after expiration of 14 days from the last date of meeting) - business not commenced within a year from its incorporation / suspension of business for a whole year. - if number of members reduced below minimum - company is unable to pay its debts -just and equitable that the company to be wound up 6. Petition by the Central Government - intent is to defraud its creditors, members or any other - fraudulent or unlawful purpose/formation was because of doing any fraud - oppression on members NOTE: - A copy of the petition made shall also be filed with the Registrar and the Registrar shall, without prejudice to any other provisions, submit his views to the Tribunal within sixty days of receipt of such petition.

13. Here we Go........ 1. The company can be wound up by the Tribunal if the company passes a _____ resolution. 2. If the company will not run/start/ will suspend its business for ______ year/months, the company can be ________ by _______ 3. When is the company unable to pay debt? _______, ______________, __________

14. GUESS........ 1. Name any two reasons under which the Registrar files a petition.___________ , ___________ 2. Who are included in joint petition for winding up? __________, ______________, _____________ 3.Creditor is a person who either has _________ claim or ______claim against the company. 4. _________ is a person who is liable to contribute towards the assets of company at the time of its winding up.

15. Case : • C claimed Rs.2,00,000/- from a company for services rendered to it. The company said it owed C Rs.1,50,000/- only. C threatened to file petition for winding up the company if he was not paid. The company was solvent. Can C file a valid petition ?

16. Case : • The company was already in the course of voluntary winding up. Two creditors presented a petition for compulsory winding up but the majority of the creditors opposed the making of a winding up order. • Is the petition valid?

17. Consequences of Winding up by the Tribunal 1. Intimation to Official Liquidator and Registrar 2. Copy of winding up order to be filed with Registrar (certified copy within 7 days) 3. Order for winding up deemed to be notice of discharge 4. Suits stayed When a winding up order has been made, no suit or other legal proceeding shall be commenced against the co. except by leave of the court 5. Powers of the Court 6. Effect of winding up order An order for winding up shall operate in favor of all creditors & contributories of co. 7. Official Liquidator to be Liquidator

18. Procedure of winding up by Tribunal 1. Official liquidator : • for the purpose of winding up by the court, there shall be attached to each High court an Official Liquidator appointed by Central govt. • Same should be their with district court , the official for insolvency purposes or any other officer can be appointed 2. Liquidator – on winding up order being made in respect of a co., the Official Liquidator become the liquidator of the co. 3. Provisional liquidator – at any time after the presentation of a winding up petition & before the making of a winding up order, the Court may appoint the Official liquidator to be the liquidator provisionally 4. Notice to the company and chance for representations On winding up order being made by the court, the official liquidator shall cease to hold office as provisional liquidator and shall become the liquidator of the company

19. WHO CAN BE APPOINTED AS OFFICIAL LIQUIDATOR? A member from the panel of the professional firms of : - chartered accountants - advocates - company secretaries - cost and work accountants which the central government may constitute. • Body corporate approved by central government. • Whole-time or part-time officer appointed by the central government.

20. Statement of affairs Where a petition for winding up is filed before the Tribunal by any person other than the company, the Tribunal shall, if satisfied that a prima facie case for winding up of the company is made out, by an order direct the company to file its objections along with a statement of its affairs within thirty days of the order * The Tribunal may allow a further period of thirty days in a situation of contingency or special circumstances CONTENTS: • Assets of the company – cash in hand , cash at bank , negotiable securities • Debts and liabilities • Details about its creditors and debtors • Any other information required by the liquidator

21. Duties of a Liquidator (as per mca website + 2014 edition) • Proceedings in winding up • Winding up Committee - Within three weeks from the date of passing of winding up order, - the Company Liquidator shall make an application to the Tribunal for constitution of a winding up committee - to assist and monitor the progress of liquidation proceedings by the Company Liquidator - shall comprise of the following persons, namely:— • Official Liquidator attached to the Tribunal; • nominee of secured creditors; and (iii) a professional nominated by the Tribunal.

22. (iii) Preliminary Report: Where the Tribunal has made a winding up order or appointed a Company Liquidator, such liquidator shall, within sixty days from the order, submit to the Tribunal, a report containing the following particulars, namely:— • the nature and details of the assets of the company including their location and value, stating separately the cash balance in hand and in the bank, if any, and • the negotiable securities, if any, held by the company:, amount of capital issued, subscribed and paid-up; • the existing and contingent liabilities of the company including names, addresses and occupations of its creditors, the debts due to the company and the names, addresses and occupations of the persons from whom they are due and the amount likely to be realized on account thereof; • guarantees, if any, extended by the company; • list of contributories and dues, if any, payable by them and details of any unpaid call; • details of trade marks and intellectual properties, if any, owned by the company; • details of subsisting contracts, joint ventures and collaborations, if any; • details of holding and subsidiary companies, if any; • details of legal cases filed by or against the company; and • any other information which the Tribunal may direct (iv) Additional reports

23. 3. Custody of company’s property (from 2014 book) 4. Perform duties imposed by court in the proceedings of winding up (i) taking over assets; (ii) examination of the statement of affairs; (iii) recovery of property, cash or any other assets of the company including benefits derived there from; (iv) review of audit reports and accounts of the company; (v) sale of assets; (vi) finalisation of list of creditors and contributories; (vii) compromise, abandonment and settlement of claims; (viii) payment of dividends, if any; and (ix) any other function, as the Tribunal may direct from time to time

24. 5. Directions from the Court: The liquidator may apply to the court for directions in relation to any particular matter arising in winding up 6. Proper books 7. Audit of accounts •  The Company Liquidator shall make periodical reports to the Tribunal and in any case make a report at the end of each quarter with respect to the progress of the winding up of the company in such form and manner as may be prescribed. • The Company Liquidator shall place before the Tribunal a report along with minutes of the meetings of the committee on monthly basis duly signed by the members present in the meeting for consideration till the final report for dissolution of the company is submitted before the Tribunal. • The Company Liquidator shall prepare the draft final report for consideration and approval of the winding up committee. • The final report so approved by the winding up committee shall be submitted by the Company Liquidator before the Tribunal for passing of a dissolution order in respect of the company. 8. Appointment of committee of inspection 9. Pending liquidation (file statement certified by auditor)

25. Dissolution of company by Tribunal • Application to the Tribunal : When the affairs of a company have been completely wound up, the Company Liquidator shall make an application to the Tribunal for dissolution of such company. • Order by Tribunal: The Tribunal shall on an application filed by the Company Liquidator make an order that the company be dissolved from the date of the order, and the company shall be dissolved accordingly. • Forward order to the Registrar A copy of the order shall, within thirty days from the date thereof, be forwarded by the Company Liquidator to the Registrar. Default : If the Company Liquidator makes a default in forwarding a copy of the order within the period specified. The Company Liquidator shall be punishable with fine which may extend to five thousand rupees for every day during which the default continues.

26. Voluntary Winding up

27. Contributory (2014 edition) • Every person who is liable to contribute to the assets of the co. in the event of its being wound up • List of contributories • List A ( present members) • List B (past members within 1 year)

28. Voluntary winding up Circumstances : 1. By passing an ordinary resolution 2. By passing a special resolution (members) Commencement : - resolution passed Advertisement of resolution : - notice to be given within 14 days (either in Official gazette or newspaper)

29. Types of Voluntary Winding up - (a) Members’ voluntary winding up (b) Creditors voluntary winding up

30. A. Members voluntarily wind up: Members’ voluntary winding up is possible only in case of solvent companies. Declaration of solvency: To wind up a company voluntarily, its director or directors, shall, at a meeting of the Board, make a declaration verified by an affidavit to the effect that the company has no debt or whether it will be able to pay its debts in full from the proceeds of assets sold in voluntary winding up.

31. Declaration made shall have no effect for the purposes of this Act, unless— - it is made within five weeks immediately preceding the date of the passing of the resolution for winding up the company and it is delivered to the Registrar for registration before that date; - it contains a declaration that the company is not being wound up to defraud any person or persons; - it is accompanied by a recent copy of the report of the auditors of the company.( P&L Balance sheet) - where there are any assets of the company, it is accompanied by a report of the valuation of the assets of the company. NOTE : Any director of a company making a declaration under this section without having reasonable grounds for the opinion that the company will be able to pay its debts in full from the proceeds of assets sold in voluntary winding up shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to five years or with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees, or with both.

32. 1. Provisions applicable to members’ voluntarily winding up • Appointment and remuneration of liquidators • Board’s power to cease on appointment of liquidator • Power to fill vacancy in office of liquidator (contributory/other OL) • Notice of the appointment of liquidator to be given to registrar (within 10 days from the event) • Power of liquidator to accept shares • Duty of liquidator to call creditor’s meeting at the time of insolvency (Rs.5000 fine to liquidator) • Duty to call general meeting at the end of each year • Final meeting after dissolution (by advt. published not less than one month and within one week after the meeting submit reports to Registrar) • Provisions as to annual and final meeting in case of insolvency

33. 2. Publication of resolution to wind up voluntarily: Where a company has passed a resolution for voluntary winding up and a resolution is passed, it shall within fourteen days of the passing of the resolution give notice of the resolution by advertisement in the Official Gazette and also in a newspaper which is in circulation in the district where the registered office or the principal office of the company is situate. Default: The company and every officer of Rs.5000 for every day during which such default continues. 3. Effect of voluntarily winding up: In the case of a voluntary winding up, the company shall from the commencement of the winding up cease to carry on its business except as far as required for the beneficial winding up of its business: • Provided that the corporate state and corporate powers of the company shall continue until it is dissolved.

34. B. Creditors Voluntary Winding Up Where the Board of directors does not file a declaration as to solvency of the company, the voluntary winding up is called ‘ the Creditors ‘ voluntary winding up. - if the members and creditors nominate two different persons as liquidators, creditors’ nominee shall become the liquidator of the company. - Besides, in the case of creditors’ winding up, if the creditors so wish , a ‘ committee of inspection ‘ may be appointed to work along with the liquidators.

35. PROVISIONS applicable: 1. Meeting of creditors (2014 + mca website) (i) creditors meeting to be called with general meeting (or next day)in which voluntary winding up resolution is to be passed (ii) Where two-thirds in value of creditors of the company are of the opinion that: - it is in the interest of all parties that the company be wound up voluntarily, the company shall be wound up voluntarily; or - the company may not be able to pay for its debts in full from the proceeds of assets sold in voluntary winding up and pass a resolution that it shall be in the interest of all parties if the company is wound up by the Tribunal in accordance with the provisions, the company shall within fourteen days thereafter file an application before the Tribunal. 2. Notice to registrar: A resolution passed at the creditors meeting must be filed with the registrar within 10 days of the passing thereof. otherwise fine of 500 Rs per day(S501). 3. Appointment of liquidator: (mca website) The company in its general meeting, where a resolution of voluntary winding up is passed, shall appoint a Company Liquidator from the panel prepared by the Central Government for the purpose of winding up its affairs and distributing the assets of the company and recommend the fee to be paid to the Company Liquidator.

36. 4. Notice of appointment of liquidator: The company shall give notice to the Registrar of the appointment of a Company Liquidator along with the name and particulars of the Company Liquidator, of every vacancy occurring in the office of Company Liquidator, and of the name of the Company Liquidator appointed to fill every such vacancy within ten days of such appointment or the occurrence of such vacancy. 5. Power to remove and fill the vacancy of appointed liquidator: (i) A Company Liquidator appointed under section 310 may be removed by the company where his appointment has been made by the company and, by the creditors, where the appointment is approved or made by such creditors. (ii) If a vacancy occurs by death, resignation, removal or otherwise in the office of any Company Liquidator appointed by, the company or the creditors, as the case may be, fill the vacancy in the manner specified. 6. Committee of inspection: The creditors at their first or any subsequent meeting, appoint a committee of inspection of not more than 5 members. 7. Fixing of liquidator’s remuneration: the remuneration of the liquidator is fixed by the committee of inspection/ creditors/ court

37. 8. Powers and duties of Company Liquidator in voluntary winding up (both creditor and member) (i) The Company Liquidator shall settle the list of contributories, which shall be prima facie evidence of the liability of the persons named therein to be contributories. (ii) The Company Liquidator shall call general meetings of the company for the purpose of obtaining the sanction of the company by ordinary or special resolution, or for any other purpose he may consider necessary. (iii) The Company Liquidator shall maintain regular and proper books of and any officer authorized by the Central Government may inspect such books of account. (iv) The Company Liquidator shall prepare quarterly statement of accounts in such form and manner as may be prescribed and file such statement of accounts duly audited within thirty days from the close of each quarter with the Registrar, failing which the Company Liquidator shall be punishable with fine which may extend to five thousand rupees for every day during which the failure continues. (v) The Company Liquidator shall pay the debts of the company and shall adjust the rights of the contributories among themselves. (vi) The Company Liquidator shall observe due care and diligence in the discharge of his duties. (vii) If the Company Liquidator fails to comply with the provisions, he shall be punishable with fine which may extend to Rs.10 lakhs.

38. 9. Board’s power to cease on appointment of liquidator - all the powers of the directors would be ceased but creditor or committee of inspection can sanction them to continue 10. Company Liquidator to submit report on progress of winding up The Company Liquidator shall report quarterly on the progress of winding up of the company in such form and in such manner as may be prescribed to the members and creditors and shall also call a meeting of the members and the creditors as and when necessary. At least one meeting each of creditors and members in every quarter and apprise them of the progress of the winding up of the company in such form and in such manner as may be prescribed. 11. Power of liquidator to accept shares

39. 12. Final meeting and dissolution of company: As soon as the affairs of a company are fully wound up, the Company Liquidator shall prepare a report of the winding up and thereafter call a general meeting of the company. (i) If the majority of the members of the company after considering the report of the Company Liquidator are satisfied that the company shall be wound up, they may pass a resolution for its dissolution. (ii) Within two weeks after the meeting, the Company Liquidator shall— (a) send to the Registrar a copy of the final winding up accounts of the company and copies of the resolutions passed in the meetings; and (b) file an application along with his books and papers of the company relating to the winding up, before the Tribunal for passing an order of dissolution of the company. (iii) If the Tribunal is satisfied, after considering the report of the Company Liquidator that the process of winding up has been just and fair, the Tribunal shall pass an order dissolving the company within sixty days of the receipt of the application . (iv) The Company Liquidator shall file a copy of the order with the Registrar within thirty days. (v) The Registrar, on receiving the copy of the order passed by the Tribunal shall forthwith publish a notice in the Official Gazette that the company is dissolved.

40. CONSEQUENCES of Voluntary winding up • As to shareholders • As to Creditors - where the company is solvent - where the company is insolvent 3. As to servants and officers 4. As to proceedings against the company 5. As to costs