Procedures involved in voluntary winding up of a company?


What are the procedures involved in voluntary winding up of a company?


Company: Voluntary Winding up

 

All problems become smaller when you confront them instead of dodging them.

~William F Halse

 

When a company involves a lot of challenges and complication or it does not function as per the expectation of its directors. then, it seems advisable for voluntary winding up such business or company. Voluntary winding up of a company is nothing but a confrontation of creditors and directors of the company that they resolve to put an end to the corporate existence of the company and dissolve it. But it completes with the established procedures provided in certain statues.

Voluntary winding up of a company is administered under Insolvency and Bankruptcy Code,2016. As per section 59 of the IBC Code, A corporate person who intends to liquidate itself voluntarily and has not committed any default may initiate voluntary liquidation proceeding[1], but before initiating this, the members of the company have so resolved by passing a special resolution. However, In the case of the state of Madras V. Madras electric Tramway[2], it was decided that a director may make a petition even without obtaining the sanction of the general meeting of the company on certain special circumstances.

 

Meaning of Voluntary Winding Up:-

 

The term winding up has now has been defined in schedule XI by introducing a new section 2 (94 A) to the companies Act, 2013 to mean ‘ winding up under this Act or liquidation under the insolvency and bankruptcy code,2016, as applicable[3]. In a general sense, Voluntary winding up of a company takes place after a mutual agreement established between the member of the company, by admitting to a special resolution or by an ordinary resolution of the members as a result of the expiry of its time period as fixed by the Article of Association or the completion of the project or event for which it was constituted.

 

Objectives for Voluntary Winding Up:-

The key objective of voluntary winding up of the company is to enable the members and creditors to settle their affairs among themselves without seeking the assistance of the tribunal.

It provides a time-bound and simpler procedure for winding up of the company under the IBC,2016

It also offers a degree of tax relief.

It helps to transfer assets into the correct value

Conditions:-

The conditions for voluntary liquidation are covered under section 59(3) of the IBC code[4].

The company should not be liquidated to defraud to any person.

The declaration should have been passed by the majority of the director of the company verified by an affidavit.

The financial statement and record of business operation have been audited for the last two years or in case, since its incorporation.

A registered valuer shall prepare a report of the assets of the company.

The liquidation process of the company will complete in a maximum of 12 months. Or else hold a meeting of the contributory `within 15 days at the end of every succeeding twelve months.

Procedure For Voluntary Winding up of a company is as follows:-

Step 1:

The members have to convene a board meeting with at least two directors to make a declaration of Solvency resolution. The declaration should contain that the company is not burdened with any debt and if any, it will be paid after assets sold in the voluntary liquidation.

Moreover, the declaration has to be verified by the director of the company on a stamp paper worth Rs. 100/-.

 it should be accompanied by:

-Last two year audited financial statement.

-The valuation of the assets of the company by a registered valuer.

-The current financial position of the company.

Step 2

The Directors have to issue a notice for holding a general meeting with an explanatory statement of winding-up resolution. The resolution has to pass by a simple majority or special majority of 3/4th members. All the details of the general meeting shall be forwarded to stakeholders.

Step 3

In Case the company owes any debts, A meeting will be conducted of creditors to approve the resolution which has been passed in the general meeting. This resolution is made to be approved within 7 days by the creditors holding 2/3rd of the value of the debt of the company.

Step 4

Within 10 days of the passion of the resolution, the company should give a notice of appointment of the insolvency professional as liquidator. It is required to intimate the Registrar of Company(ROC) in FORM MGT-14 for board resolution and special resolution & GNL-2 for declaration of insolvency & Appointment of liquidator.

Step 5

The liquidator shall make a public announcement in FORM A within 5 days from his appointment. It has to be published in one regional newspaper having to call for a claim from stakeholders within 30 days.

Step 6

The liquidator has to intimate IBBI regarding initiation of voluntary winding up within 7 days of approval of liquidation of the company.

 Step 7

The corporate debtor shall cease to have an effect and the liquidator will take over the charge of the company. The liquidation will have to submit the following:

-Within 45 days from the commencement of liquidation. A report on capital structure, assets and liabilities of the company required to be submitted by the liquidator.

-Have to open a bank account in the scheduled bank in the name of the company.

-Obtain a No-objection letter from the TAX department.

Step 8

Liquidator to value and sell the assets of the corporate person in the provided manner i.e approved by the company. All the deposit proceeds of distribution in the bank account.

 Step 9

The money obtained from the proceeds shall be distributed to the stakeholder of the company within 6 months from the received amount after deducting the liquidation cost.

Step 10

The liquidation has to be completed within 12 months from the date of commencement of winding up. Once the liquidation process gets completed the liquidator will submit a final report of the audited account of liquidation of assets to the IBBI.

Step 11

When the whole liquidation of winding up takes off, the liquidator has to make an application to NCLT for the dissolution of the company. From NCLT, An order of dissolution will be serviced.

Step 12

The order copy shall be forwarded to the registrar where the company had registered.



Conclusion.

The IBC code offers a comprehensive framework for a resolution/revival plan and liquidation. It provides a feasible platform for the voluntary liquidation of the company. The liquidation process of the corporate debtor and realize the assets and to distribute the proceeds to the stakeholder of such company. The liberty to the stakeholder to file a winding-up petition a kind relief on overburdened tribunals.

[1] Indian Insolvency and Bankruptcy Code, Section 59

[2] AIR 1956 Mad 181

[3] Indian company Act 2013,section 2(94A)

[4]  Indian Insolvency and Bankruptcy Code, Section 59(3)

 

Author-

Amar Alam (3rd year B.A.LL.B)

Central University of South Bihar, Gaya

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