An organization’s winding up is the process of ending its existence. During the winding-up process, the firm’s property is managed for the benefit of its creditors and members. A company’s winding up procedure can be initiated by the shareholders voluntarily or compelled by a tribunal or a court. Here is what we need to know.
What Does Winding Up Mean?
Winding up is the liquidation of a company’s assets acquired and liquidated to pay off its debts. In the event of a company’s bankruptcy, its liabilities, costs, and charges are paid off first. Winding up a company means distributing its remaining assets among its shareholders.
After Liquidating the Company, it officially ceases to exist
In law, winding up a firm means ceasing all operations and winding it up legally. As soon as a company is wound up, it ceases to exist, and its assets are managed to ensure that its stakeholders’ interests are protected.
Legal notice can be given by the company’s shareholders at any time to wind up the company. All bank accounts of the company must be closed after the debts have been settled. GST registrations must also be surrendered when a company closes.
When all registrations have been revoked, a winding up petition can be filed with the Ministry of Corporate Affairs. There are two general ways to wind up a corporation:
- Compulsory company’s winding up
- Voluntary compnay’s winding up
Winding Up the Company : Compulsorily
Companies created and established under the ordinance can be forced to wind up by courts or tribunals. A company may be wound up by the Tribunal under certain circumstances. In accordance with the Companies Act of 2013, compulsory winding up is only possible in the following circumstances:
- Courts or tribunals have been authorized to wind up the corporation by special resolution.
- Infringes on the country’s sovereignty and integrity.
- In the past five years, the company has not filed financial statements or annual returns.
- Tribunals or courts in this situation find that the firm is operating fraudulently or that the corporation was formed in an illegal or fraudulent manner.
- A winding up of the corporation is deemed just and equitable in its opinion.
People Eligible to File a Winding-Up Petition
To close a firm, a petition must be filed, and the following individuals are permitted to do so:
- Money is owed to the creditors
- Contributions of any kind
- Registrar’s office
- The central government has granted permission to any person
- The state government has granted permission to any person
There are also the following considerations:
- The registrar must obtain prior approval from the central government before presenting the petition for the winding up of company. A reasonable opportunity must also be provided to the company before the Central Government issues such permission.
- A copy of the appeal will also be given to the registrar, and he will have 60 days to comment on it.
Tribunal’s actions upon receiving the petition
Following receipt of an application for company winding up, the Companies Act of 2013 specifies what action the Tribunal will take.
Upon receiving the Petition, the Tribunal would issue one of the following orders:
- (With or without costs) Reject the proposal.
- As deemed necessary, make a temporary arrangement
- To appoint a preliminary liquidator while a winding-up order is pending
- Dissolve the corporation (with or without fee)
- Other orders may be passed as it sees fit
- If the Tribunal does not issue an order within 90 days of receiving the Petition, the Petition will be dismissed.
- A legal notice and a reasonable opportunity for hearing must be provided to the company before a provisional liquidator is appointed
- When someone other than the firm files the petition for the business winding up, the Tribunal will order the company to file an objection, along with an account of affairs, within 30 days.
- Directors and officers are expected to receive the liquidator’s books of accounts (completed and inspected up to the order date).
An Overview of the Compulsory Dissolution Procedure
- As previously stated, only certain types of people are allowed to petition for the winding up of a company.
- A Statement of Affairs must accompany the Petition when it is filed.
- Here is how the Petition should be advertised:
- In accordance with Form 6, an announcement must be made.
- In a daily journal, the advertisement should run for at least 14 days.
- Both the regional tongue and English should be used in the announcement.
- An audited set of accounts must be produced by the business. Let’s say the Tribunal finds that the company’s accounts are in order and that it has complied with all mandatory compliance requirements. It is in that case that the Tribunal will order the company to be dissolved/winded up.
- The registrar will publish a notice in the official gazette announcing the company’s dissolution following the Tribunal’s order.
There are many reasons for ending a corporation, but it is not as straightforward as closing its doors or not showing up at work. In comparison to the process of winding up, the winding up process takes much longer. The first step in the process is to send a legal notice with the help of an experienced professional.v
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