Companies were wound up under the Companies Act, 2013 before the Insolvency & Bankruptcy Code, 2016, (IBC, 2016). Regardless of the facts and circumstances of the case, companies can be wound up under either the Companies Act, 2013 or the Insolvency & Bankruptcy Code, 2016.
Winding up of a Company
Companies are wound up when their life is ended and their assets are sold and then distributed among creditors and shareholders by their administrator.
Modes of winding up of a Company
As far as winding up a company is concerned, there are two ways in which you can do this –
- Voluntary winding up of a company
- Compulsory winding up of a company (By Tribunal)
Voluntary winding up of a company
The liquidator takes charge and concludes the winding up process by passing a special resolution. An individual company may elect voluntary liquidation of company under certain circumstances prescribed by the Companies Act, 2013.
Process of voluntary winding up
1. Meeting of the Board
Involuntary Winding up of a Company begins with the convening of a Board Meeting where the directors will discuss winding up the company. If they agree, they will proceed with further steps-
2. Solvency Declaration
During voluntary liquidation, the company must provide an affidavit certifying that it does not have any debt liabilities or that it has certain debts but can repay them all.
The following documents must accompany the affidavit
- Financial statements for two years
- Business records for two years
- Registrar’s report on assets
- Financial overview
3. Agenda for the Board meeting
Aside from declaring solvency, board actions include:
- Liquidator to complete winding up
- A special General Meeting to wind up the company to fix the time, date, and date
4. Publish meeting notice
Next, all shareholders are served with a notice of general meeting and its agenda.
5. Shareholders’ General Meeting
After the declaration of solvency, shareholders shall hold a general meeting within four weeks to vote on these resolutions:
In order to liquidate the company
The liquidator is appointed
It is also mandatory that the creditors holding 2/3rd of the debt pass a resolution within 7 days.
6. Resolutions filed with the ROC and IBBI
Insolvency and Bankruptcy Board of India and Registrar of Companies will require a resolution of shareholders and board by the liquidator.
7. Company will be run by liquidator
In this part of the process, the liquidator observes the remaining steps involved in voluntary winding up of the company. These steps include:
- Asset realization
- Debt and dues settlement
- Shareholder distribution (liquidator can consult any shareholder)
8. Form A – Public Announcement
Liquidators are required to announce winding up within 5 days of their appointment. Claims must be submitted within 30 days.Publications of such announcements will also be made in
- Newspaper in English
- Newspaper in a regional language (place of registration)
9. Claims Settlement
Liquidators verify and settle claims. I prepare lists of stakeholders who are making claims within 45 days of receiving claims and objections.
- Stakeholder details
- Accepted claim amount
- Debts that are secured or unsecured
- Accepted or rejected evidence or proofs
10. Report preliminarily
After liquidation commences, a preliminary report must be prepared
- Capacity of the company
- Liquidation estimate of assets and liabilities
- Liquidator investigates company affairs.
- Liquidation plan proposed
- Costs of liquidation
11. Scheduled bank account
To receive all due money and to meet liquidation costs, liquidator shall open a bank account in company’s name in a schedule bank (followed by “in voluntary liquidation”).
12. Tax authorities’ N.O.C.
Tax authorities must then issue a No objection certificate to the liquidator.
13. Asset Realization
All assets of the company shall be realized by the liquidator and deposited in the above-mentioned bank account.
14. Proceeds distribution
Upon receiving the money realized through the sale of assets, the shareholders shall be divided within six months after the liquidation costs have been deducted.
15. Process duration for liquidation
After commencing liquidation, liquidator shall complete it within 12 months.
16. Report finalized
As soon as the liquidator completes the liquidation process and provides all the details, the liquidator must submit the final report to the IBBI and Registrar of Companies.
17. Proceedings of NCLT
Once the company’s affairs have been wound up completely, the liquidator must request dissolution at the NCT.
Listed in order:
In this case, NCLT shall pass an order declaring the company dissolved from the date of the order.
Liquidators must file copies of orders with ROC.
Liquidators are required to keep records, registers, and books of accounts for at least 8 years after voluntary dissolution.
The process of voluntary winding up of a company is indeed a tricky one. It is advisable to contact a team of professionals to undertake the winding up process for you.