COMPANY CLOSURE

About Liquidation- Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due. As company operations end, the remaining assets are used to pay creditors and shareholders, based on the priority of their claims.
Liquidation generally refers to the process of selling off a company’s inventory, typically at a big discount, to generate cash to generate cash to pay off creditors, or anyone the company owes money to.

Types of Winding Up of a Company:

1. Compulsory Winding Up by the national company Law Tribunal
2. Voluntary Winding Up

Circumstances when a company can be Compulsorily Wound Up by a Tribunal:

1. When the company is unable to pay its debts 2. If the company has by special resolution resolved that the company be wound up by the tribunal. 3. If the company has acted against the interest of the integrity or morality of India, security of the state, or has spoiled any kind of friendly relations with foreign or neighbouring countries. 4. If the company has not filled its financial statements or annual returns for preceding 5 consecutive financial years. 5. If the tribunal by any means finds that it is just & equitable that the company should be wound up. 6. If the company in any way is indulged in fraudulent activities or any other unlawful business, or any person or management connected with the formation of company is found guilty of fraud, or any kind of misconduct.

Procedure for Compulsory Winding Up by Tribunal:

1. Filing Of Winding Up Petition:- Every petition , application or reference shall be filed in form as provided in Form No. NCLT. 1. Any attachments have to be accompanied in Form No. NCLT. 2. Every petition , application or reference has to be verified by an affidavit in Form No. NCLT. 6. The petition for compulsory winding up can be presented by the following persons:

• The company
• The creditors ; or
• Any contributory or contributories
• By the central or state govt.
• By the registrar of any person authorized by central govt. for that purpose

2. The tribunal on receipt of such petition for winding up shall pass an order within 90 days from the date of presentation of the petition. The tribunal can dismiss it, make an interim order, appoint a provisional liquidator , make an order for winding up or make any other order in its regard.

3. The tribunal shall give notice to the opposite party before appointing a provisional liquidator and give them opportunity to make their representations. Such notice has to be provided in Form No. NCLT. 5.

4. On being satisfied that it is a prima facie case for winding up, the tribunal may, by order , direct the company which is to be wound up, to file its objections along with a statement of affairs within 30 days of the order and may grant extension of 30 days in special circumstances.

5. If an order for winding up has been passed by the tribunal, the directors and other officers of the company have to submit the completed and audited books of accounts of the company within 30 days of such order being passed by the tribunal to the provisional liquidator.

6. The tribunal shall appoint a provisional liquidator or a company liquidator at the time of passing an order for winding up of the company. The tribunal within 7 days from the date of passing such order , intimate the same to the liquidator and the registrar. Such liquidator shall file a declaration within 7 days from the date of appointment about any conflict of interest or lack of independence in respect of his appointment.

7. Within 3 weeks of such order of winding up, the Company liquidator shall make an application to the tribunal to constitute a Winding Up Committee to assist and monitor the process of liquidation. He shall prepare a draft final report for approval of the committee and the final approved report will be submitted by the Company liquidator to the tribunal to pass dissolution order for the company.

8. Company liquidator, has to submit a report on the viability of the business of the company and any further reports as he deems fit to the tribunal within 60 days of passing of order of winding up .

9. Tribunal shall fix a time within which the entire proceedings shall be completed and the company shall be dissolved. The tribunal may also order sale of the company.

10. The registrar will issue a notice, after the order of the tribunal, to the official gazette mentioning that the company is dissolved.

Circumstances when a company can be wound up Voluntarily:

1. The expiry of the prefixed duration of the Company, or the occurrence of event whereby the Company is to be dissolved, and adoption by the Company in general meeting of an ordinary resolution to wind up voluntarily; or

2. The passing of a special resolution by the Company to wind up voluntarily.

Procedure for Voluntary Winding Up by Tribunal:

1. Conduct a board meeting with majority of Directors and thereby pass a resolution with a declaration given by directors that they are of the opinion that company has no debt or it will be able to pay its debt after utilizing all the proceeds from sale of its assets.

2. Issue notices in writing for calling of a General Meeting proposing the resolution along with the explanatory statement.

3. In General Meeting pass the ordinary resolution for the purpose of winding up by ordinary majority or special resolution by 3/4th majority

4. Conduct a meeting of creditors after passing the resolution, if majority creditors are of the opinion that winding up of the company is beneficial for all parties then company can be wound up voluntarily.

5. Within 10 days of passing the resolution, file a notice with the registrar for appointment of liquidator.

7. Within 30 days of General meeting, file certified copies of ordinary or special resolution passed in general meeting.

8. Wind up the affairs of the company and prepare the liquidators account and get the same audited.

9. Conduct a General Meeting of the company.

10. In that General Meeting pass a special resolution for disposal of books and all necessary documents of the company, when the affairs of the company are totally wound up and it is about to dissolve.

11. Within 15 days of final General Meeting of the company, submit a copy of accounts and file an application to the tribunal for passing an order for dissolution.

12. If the tribunal is of the opinion that the accounts are in order and all the necessary compliances have been fulfilled, the tribunal shall pass an order for dissolving the company within 60 days of receiving such application.

13. The appointed liquidator would then file a copy of order with the registrar.

14. After receiving the order passed by tribunal, the registrar then publish a notice in the official Gazette declaring that the company is dissolved.

Documents required for Voluntary Winding Up of Company:

1. Declaration of Solvency duly verified by an Affidavit by Majority of Directors of the Company on Stamp paper of Rs.100/- stating they have made a full inquiry into the affairs of the company and they have formed an opinion that either the company has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation; and the company is not being liquidated to defraud any person;.

2. Affidavit to be accompanied by :
i) Audited Financial Statement of past two years
ii) Records of Business Operations of past two year
iii) Report by the Registered Valuer about the valuation of the assets of the Company, if any.
iv) Latest Financial Position of the Company, if any.

3. Copy of Board Resolution and Special Resolution passed for voluntary winding up.