What is Winding up a Company?

 

What is Winding up a Company?

The winding-up or closing of an enterprise is the mechanism by which the assets of a company are accumulated and sold to pay off their debts. The residual sums after payment of all loans, taxes, and charges are split among the company's shareholders. The corporation is officially abolished and stops operating when the process of winding up is all clear. 

A business may be affected in one of two ways in specific terms. First, a company may be compelled to terminate by the Court. Furthermore, in cases referred to as "voluntary winding up," the owners or the creditors themselves may apply.

In this article, we will let you know all about the winding-up of an enterprise.

  • How to do a winding of a company
  •  Winding- up compulsory or by Court
  •  Voluntary winding -up
  •  Dissolution modes

How to do a winding of a company

Business dissolution is a formal procedure regulated by corporate law and by business papers or related agreements. The closure may be compulsory or optional and may apply to public and private companies.

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Following Article 2(94A) of the Company Act of 2013, the "Winding up" shall mean the termination of up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016. 

This inevitably results in the company being dissolved. The legal body of the corporation exists between the liquidation and the dissolution and may be prosecuted by the Court of Law.

Winding- up compulsory or by Court

It can be done by-

i. Company appeal - A corporation will file a petition for the closure of the business before the Court if the Company's representatives have agreed to end the company's business with a Special Resolution. It cannot be a single member's vote.

ii. Investor's request – A investor is entitled to make an application for the closure of the Company given the fact that he or she may have a fully paying shareholder or that the company cannot possess any assets whatsoever, or that surplus assets are available to the holders for sale after their liabilities have been complied with.

iii. The registrar's petition- Registrar can only make petitions to the Tribunal for termination of the business in the following cases with prior approval of the Central Government:

(a) When, for immediately preceding five consecutive fiscal years, the company failed to send its financial or annual reports to the Registrar;

(b) Where the protection of the state's friendly ties with foreign States, public order, dignity, or moral law is working against the interests of sovereignty and independence of India.

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(c) If the Tribunal finds that the business of a company has been conducted fraudulently or a company is established dishonestly and unlawfully, or if the persons involved in forming or managing the matters of the company are guilty of fraud, misconduct or misfeasance in connection therewith and that it is right that the company be wound up.

IV. The central government or the government of the State on the pretext of its acting in opposition to the interests of India's sovereignty, protection of the State, international friendly ties, public order, dignity, or moral values.

Voluntary winding -up

Liquidation under Insolvency and Bankruptcy Code 2016

The Insolvency and Bankruptcy Code 2016 involves the re-organization and settlement promptly of businesses, alliance companies, and individuals.

In insolvency and bankruptcy matters for companies where the minimum default value is Rs. 1 lakh (the government can raise them by notification to Rs.1 crore). the insolvency and liquidation of 2016 apply.

There are two phases in the code:

The process of insolvency resolution -

This is the stage at which financial creditors determine the viability of the debtor enterprise and offer proposals for its reorganization and restructuring;

Liquidation

In the event of a default in the insolvency settlement, the winding-up phase shall begin whereby the company's assets are carried out to pay the creditors.

Dissolution modes:

In any of the following forms, a corporation may be dissolved:

1. By transition of a corporation under a restructuring or assemblage scheme to another. In this situation, the transferor business is dissolved without being harmed by an order of the Court.

2. By closing up the company, the company's assets would be realized and used to pay its liabilities. The surplus is allocated according to their rights to the representatives of the organization.

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