Process of Winding Up Of A Company – 2022

If the company owners or directors decide to wind up the business, they may consider the different options of closure. Winding up of a company is the legal mechanism of shutting down the company by liquidating the assets (i.e. selling the company assets) in order to pay all the debt incurred. One of the easiest ways to wind up a company is striking off its name from the Register of Companies. This is preferable when a company is inactive for a certain period. The other option is applying for a winding-up petition, however, that involves more time, investment, and compliance. Any private limited company can wind up both ‘voluntary’ and ‘compulsory’ ways.

A Winding up of a Private Limited company involves dealing with all the properties, assets and paying off all the loans and debts, paying all bankers, and distributing the remaining properties or assets to the shareholders of the private limited company.

There are two ways in Winding up the Company

  1. Voluntary Wind up(Strike off)
  2. Compulsory Wind up(By the Tribunal)

Voluntary Closure or Strike off:

Section 560, of the Companies Act, 1956, deals with strike-off provisions of a non-functioning company. Any inoperative company which wants to strike off its name from the register can apply through Form FTE to strike off its name from the register maintained by the Registrar of the company (ROC) which is often referred to as the FAST TRACK EXIT method. Here the Company must fulfill all the compliance before proceeding to the strike-off application process. Various documents should be accompanied with the primary condition of the company possessing no assets or liabilities.

In a voluntary strike-off or volunatry winding up of company before filing an application to the Roc to remove its name, the company should get the consent of at least 75% of its members by passing a special resolution. In order to get eligibility to apply through ROC, it must meet the following requirements.

  1. The company fails or does not commence business within one year of incorporation.
  2. The company is inactive or does not carry any business for two preceding financial years and has not filed any application within such period for getting the status of an inactive company under Section 455 of the Act
  3. When a company made an application to the Tribunal for the sanctioning of a compromise or arrangement and the matter has not been finally concluded;
  4. When it has engaged in any activity (having business transactions in last 1-2 years)
  5. One year is not completed since incorporation 6. If a company has changed its name or shifted its registered office from one State to another at any time in the previous 3 months.

Step procedures for Voluntary Wind up/Strike off:

  1. Call a board meeting in accordance with the Companies Act 2013
  2. Coordinate Board meetings to pass the resolutions
  3. Draft minutes of the board meeting and circulate, within a period of fifteen days from the date of conclusion of that meeting, to all directors, by hand/speed post/registered post/courier/e-mail for their comment(s).
  4. Convene a general meeting to pass a special resolution to make an application with the Registrar of Companies for striking off the name.
  5. File e-Form MGT-14 along with a copy of the special resolution with the office of the Registrar of Companies, within thirty days of passing a special resolution
  6. Has to prepare Indemnity Bond in Form STK-3 and Prepare Affidavits in Form STK-4
  7. The statement of accounts has to be punctually prepared and certified by a Chartered Accountant.
  8. File legal instrument in e-Form STK-2 with the ROC within thirty days of the date of the statement of accounts.
  9. The Registrar shall publish a notice in Form STK-6 of the same after receiving the application for inviting objections if any.

Documents required for Winding up of a Company:

  1. A certified true copy of the board resolution for authorization was given for filing this application.
  2. Registered Digital Signature Certificate (DSC) of director for signing the form.
  3. Memorandum of Association (MOA) of the Company
  4. Article of Association (AOA) of the Company.
  5. Proof of Identity (PAN Card/Aadhar Card/Voter ID).
  6. Residence Proof (Passport/Driving License/Voter ID)
  7. Statement of account is prepared and duly certified by a Chartered Accountant.
  8. Affidavit in Form STK-4 and Indemnity bond in Form STK-3 duly notarized.
  9. A certified true copy of the special resolution

Compulsory Closure/Winding up of a Company by a Tribunal:

Any company registered in India under the Companies Act that is concerned with any unlawful act, fraudulent act or even if they contributed any action in some fraudulent or unlawful activities then such company would be wound up compulsorily by the Tribunal. The recent updated Companies Act, 2013 contains many new rules which specify that a company can be broken up by a tribunal for any one or more of the following reasons:

If the company is unable to repay its debts/loans; If the company has a resolution put up, that it can be dissolved or wound up through a tribunal under certain conditions

If the company has not filed returns or submitted financial statements for 5 consecutive years

If the company has acted against the integrity and sovereignty of the country and has interfered with the relationship between neighboring or foreign countries and India

In any of the above cases, a tribunal is formed and a resolution is taken to wind up the operations of the company under study. Such tribunal decisions are deemed final and after hearing the order, Form11 is issued for winding-up.

Winding Up Of A Company
Winding Up Of A Company Procedure

Procedure for Winding up of a Company by Court or Tribunal:

  1. The court or tribunal will set the procedure by sending a notice to an official liquidator who will be in charge of the company and carry out the process of liquidation.
  2. The court will also prepare the winding-up order, which shall be served on all creditors and contributors, asking them to step forward. The order is to be served even upon those who’ve filed the petition for winding up
  3. The liquidator, appointed by the central government shall examine the books of the company, liabilities, creditors, loans, etc.
  4. The official liquidator in the next six months must furnish to the court a preliminary report on the accounts, liabilities, debtors and cash and negotiable securities, and so on. Then the liquidator must make sure that the available money is fairly divided between all creditors until exhausted. The liquidator will present to the court a complete account of how the money, assets, and operations were divided
  5. After inspection of the account, the court pronounces the dissolution of the company.

The related forms and details can be referred in the Ministry of Corporate Affairs (https://www.mca.gov.in/content/mca/global/en/home.html) Portal.

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