Introduction

In this article you will learn about the " modes Of Winding Up Of A Company " and will be able to understand it better. But now we have to understand what is winding up and when does it happen? This will help us understand the upcoming topics. 

Meaning Of Winding Up Of A Company

Winding up of a company is the legal process where the life of the company is brought to an end. In this process a company is dissolved, and its assets are sold off to pay its debts & liabilities and remaining assets are distributed to the shareholders. Professor Gower has defined the winding up as, " Winding up of a company is the process whereby its life is ended, and its property is administered for the benefit of its members and creditors. An administrator, called a liquidator, is appointed and he takes control of the company, liquidates its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights ". Section 2(94 A) of the Companies Act, 2013 defines winding up. It is a legal process and the process may be initiated by voluntary or compulsory by the court. 

Modes Of Winding Up

According to the " Companies Act, 2013 ", a company may be would up by :-
(1) compulsory winding up by the court 
(2) voluntary winding up






Compulsory Winding Up By The Court

Winding up by the court refers to a situation where a company is ordered to be wound up by the court due to some fraudulent activities, act against the state & nation, inability to pay debts etc. As per the section 271 of Companies Act, 2013," A company may, on a petition under section 272, be wound up by the Court, 
  1. If the company has, by special resolution, resolved that the company be wound up by the Court. 
  2. If the company has acted against the interests of the the sovereignty and integrity of india, the security of the state, public order, decency and morality. 
  3. If on an application made by the Registrar or any other person authorised by the Central Government by notification under this Act, the court has declared that the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose. 
  4. If the company has made a default in filing with the Registrar it's financial statements or annual returns for immediately preceding five consecutive financial years. 
  5. If the court is of the opinion that it is just and equitable that the company should be wound up."

Voluntary Winding Up 

Voluntary winding up is the process where the shareholders of a company voluntarily decide to wind up the company due to various reasons such as inability to run the business, completion of company's life cycle, realization of the company's objectives, if the board of directors requests for voluntarily wind up by special resolution , in the occurance of any event which are against its article of association and which the articles provide that the company shall be dissolved. The process of voluntary winding up involves the passing of a resolution by the shareholders for the winding up of company, appointment of liquidator who sell company assets to pay its debts and liabilities and remaining assets are distributed to shareholders of the company. 

Conclusion

This article talks about how the life of a company is brought to an end, in other words, how a company is wound up. A company may be wound up by an order of the Court that is compulsory winding up of company or it may also be wound up by voluntary. In both mode of winding up, a liquidator must be appointed who shall take full authority over the company mainly for the purpose of realization of its assets means selling of company's assets to pay off its debts & liabilities and distribution of the surplus left among the equity shareholders. Winding up process should be done by following the provisions of Companies Act, 2013 or the Insolvency and Bankruptcy Code, 2016 , whichever is applicable, otherwise the directors and other officers found guilty of non- compliance shall be punished with penalties. 

Frequently Asked Questions

Question 1. What is winding up of a company in company law? 

Winding up of a company is a legal process by which business of the company is wound up and all the assets of the company are sold to pay its debts and liabilities and remaining assets are distributed among its members. 

Question 2. What are the types of winding up of the company? 

There are two types by which company may be would up : -
  • Voluntary winding up 
  • Winding up by the court ( compulsory winding up) 
Question 3. Who is called liquidator? 

A liquidator is a person with legal authority who act on the behalf of company and take full authority over the company to sell the company's assets to generate cash for the payment of company's debts and liabilities and distributed surplus amount amount its members. 

Question 4. What is the difference between dissolution and winding up? 

Winding up is prior stage and dissolution is final stage. In case of winding up, the legal existence of the company continues till it's complete but in case of dissolution, the existence of the company comes to an end.