Winding Up of Company

Kazi Murad Hossain

Assistant Professor, Law Discipline , Khulna
University
 Meaning of Winding Up
• The winding up or liquidation of a company is the process by which
a company's assets are collected and sold in order to pay its debts. Any
monies remaining after all debts, expenses and costs have been paid off are
distributed amongst the shareholders of the company.
 Is winding up the same as liquidation?

• The difference between winding-up a company

and liquidation is: Winding up a company: This deals with ending business
affairs and terminating company obligations
before liquidation. Liquidation: This deals with the sale of the company's
assets once it has closed.
What are the consequences of winding up of a
company?

• The effects of the winding-up order are severe. Once a business enters
liquidation, it must stop trading, all staff are made redundant, and the assets
of the company are sold to repay creditors. As part of the process,
the company's directors lose control of the company and the sale of its
assets.
 Winding up and dissolution
• The term "dissolution" refers to the systemic closing down of a business
entity, while "winding up" refers to the selling of assets and payment of
debts prior to closing a business. Dissolution and winding up, as well as
other aspects of closing a business, often require the assistance of a legal
professional
 Winding Up:
• Winding Up is defined as liquidation of company and could be a compulsory
winding up as enforced by the creditors of the company or voluntary
winding up of private limited company procedure as brought in by the
corporate person.
 Dissolution of Company:

• The Dissolution of a company may take place in two ways. First in which the
company is transferred to another company under the scheme of reconstruction or
amalgamation. In such a case, the transfer of company will be dissolved by an order
of Tribunal without it being wound up.
• In second scenario, the company shall undergo winding up process where the
assets of the company shall be realized and proceeds shall be used to pay its
liabilities. Once the debts have been settles, the remaining amount, if any, shall be
distributed amongst the stakeholders and Tribunal shall pass the order of
dissolution of the company and strike its name off the register of Registrar of the
Companies.
 Modes of winding up (Section 234)
• The Companies Act 1994 provides three ways of winding up of a company
which are:

• Compulsory winding up under order of the court

• Voluntary winding up
• Winding up subject to the supervision of the court
 Winding up by the court (section 241)
Meaning
Meaning: When a company is wound up :
a) by the special resolution of the share holders;
b) Fails to hold the statutory meeting or file the statutory report;
c) Fails to commence business within due time prescribed by law; or
d) Has less number of members than its requirement as provided by law. Or
e) Fails to unable to pay its debts; or
f) Is wound up on just and equitable ground then it is called compulsory winding up by
court.
 Cont…
• In the case of winding up by the order of the court all activities are
conducted under the supervision of the court. For such supervision
government official liquidator is appointed and the director loose this
powers.
 Petition for winding up
• I) Petition by company
• II) Creditors petition
• III) Contributory's petition
• IV)Register’s petition
 Grounds of compulsory winding up by
court(section 241)
• If by special resolution it resolves that it be wound up
• If it defaults in filing statutory report or in holding the statutory meeting
• If the company fails to commense its business within a year from its incorporation,
or suspends its business for a whole year.
• If the number of member is reduced than the statutory requirements
• If the company is unable to pay its debts
• If the court is on opinion that it should be wound up on just and equitable grounds
(Rahimuddin Ahmed v Bengal water ways Ltd. [1979] 31 DLR 28)
 just and equitable grounds
• Deadlocks
• Continuous loss of the company
• Fraudulent purpose
• Loss of substratum
• Oppression of minority
• Bubble company
• Mismanagement in domestic company
 Method of compulsory winding up
• Hearing of application
• Commencement of winding up by court
• Appointment of liquidator and order of winding up
• Preparation of the list of the contributories
• Collection of documents and assets
• Proof of claim
• Payment of due
• Dissolution of company
 Consequences of compulsory winding up
• Effect of winding up order [246]
• No suit in winding up order [250]
• Official liquidator to be appointed [256]
• Custody of company’s property [260]
• Termination of the director’s power
• Property deem to be in the custody of the court [260(2)]
• Security of the secured creditors
 Voluntary winding up
• More common and advantageous because of fewer formalities.
• When the members and the creditors settle the affairs of the business in
their own accord without the intervention of the court it is called voluntary
winding up.
 Initiation of voluntary winding up [286]
• By adoption of ordinary resolution
• By adoption of special resolution
• By adoption of extra-ordinary resolution

Commencement of voluntary winding up: A voluntary winding up shall be

deemed to commence at the time when the resolution for such a winding up is
passed. [286(2)]
 Types of voluntary winding up [290]
• Members voluntary winding up
• Creditors voluntary winding up
 Members voluntary winding up
• A voluntary winding up is said to be members voluntary winding up when a
declaration of solvency is made by the directors in accordance with the provisions
of this Act.

• To determine whether a voluntary winding up is either members or creditors

Palmers comment may be mentioned here:
• “The test is not whether the company is solvent or not but whether the declaration of
solvency has been made before the general meeting passed the resolution for winding up.”
 Procedure of members’ voluntary winding up
• Declaration of financial solvency (in director meeting)
• Submission of this declaration to the registrar
• Adoption of decision of winding up (general meeting)
• Notification of decision
• Appointment of liquidator
• Call of general meeting
• Final meeting and dissolution
• Submission of documents to registrar
 Adoption of decision of winding up

• A company may be wound up voluntarily :

• if any period, fixed for the duration of the company by the article expires;
• When the articles provide that on the happening of any event the company is to be
dissolved and if it happens or occurs
• If the company resolves by special resolution that the company wound up voluntarily
• Under certain circumstances if the company fails to continue its business then by
passing an extra-ordinary resolution.
 Creditors voluntary winding up
• When a resolution is passed at the general meeting to wound up a company
voluntarily without any declaration of financial solvency of the company, it is
called creditors voluntary winding up.
• Directors make no declaration of solvency.
 Procedure of creditors voluntary winding up

• Adoption of decision
• Meeting of the creditors
• Appointment of liquidator
• Appointment of committee of inspection
• Arrangement of annual meeting of the shareholders and creditors
• Final meeting and dissolution
• Submission of documents to the Registrar
 Winding up subject to the supervision of the
court
• After passing the resolution for winding up the company, if the winding up
is completed voluntarily on the application of the shareholders or of the
creditors or of both of the parties or on any other ground, but with the
supervision of the court then it is called winding up of a company subject to
supervision of the court.
 Our Act Provides that (316)

• “ when a company has by special or extraordinary resolution,

resolved to wind up voluntarily the Court may make an order that
the voluntary winding up shall continue, but subject to such
supervision of the Court, and with such liberty for creditors,
contributories; or other to apply to the court and generally on such
terms and conditions as the court thinks just.”
 Grounds
• The liquidator under voluntary liquidation is partial or is negligent in
collecting the assets
• The rules relating to the winding up are not being observed
• The resolution for winding up was obtained by fraud.
Effects of winding up subject to supervision of
court
• It gives the court jurisdiction over suits and legal proceedings as in the case
of a petition for winding up by the court. [317]
• The court may consider the wishes of the creditors or contributories to
decide the mode of winding up or to appoint the liquidators. [318]
• The court can appoint an additional or liquidators. The court can remove
him and fill the vacancy caused by such removal or death or resignation.
[319]
Effects of winding up subject to supervision of
court
• Where the company is wound up subject to supervision of the court, the
liquidator may exercise all his power reasonably, without the sanction or
intervention of the court.
• When an order of winding up subject to supervision of the court is made, it
shall, for all purposes including stay of suits or other proceedings, be deemed
to be an order of the court. It shall also confer full authority on the court to
make calls or to enforce calls made by liquidators. [320]
 Difference between voluntary winding up and
compulsory winding up
• Decision of dissolution
• Declaration of solvency
• Commencement of winding up
• Appointment of liquidator
• Preparation of list
• Appointment of committee of inspection
• Kinds of winding up
• Submission of documents
• Actual time of dissolution
 Difference between members voluntary
winding up and creditors voluntary winding up
• Declaration of solvency
• Circumstances of winding up
• As to meeting
• Appointment of committee of inspection
• Appointment of liquidator
• Exercise of powers by the liquidator
• Controlling power
• Circumstances of dissolution
 Student task
• Prepare an artificial report (mentioning all the procedure) on the winding up
of the company you have formed for this course. Make the report as much
realistic as possible.
“
Any Question?

Thank You