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Voluntary Winding up of Companies- A Genuine Business Strategy

One can observe that The Companies Act 1956 provides the necessary medium for undertaking voluntary winding up without the intervention of Court/ Tribunal; even then the companies that are wound up in India are largely on coming under the class of compulsorily winding up.

One can ask the question as to why such a scenario has occurred when the legislation itself has provided with an alternative of voluntary winding up as genuine business transaction either to fulfill certain objectives of a corporate vehicle or as a part of reconstruction of business or even finally to close down the business due to various reasons not necessarily of that being insolvency.

The reasons could be various – among them could be the lack of understanding of the subject, non availability of competent professionals practicing in insolvency, etc.  The answer to this problem is to quite an extend solved by the introduction of the profession of Company Secretaries, who seem to be competent to handle such assignments which is substantiated by the curriculum and the practical knowledge obtained by them. The success of insolvency proceedings will depend on how quickly competent professionals like company secretaries with bigger infrastructure can be in this area of practice.  The formation of NCLT will be a milestone in the profession of insolvency professionals.

PRIVATE LIQUIDATORS
Who can be a Liquidator?

The Act following types of Liquidators are emerging , they are
a)    Official and Provisional Liquidator
b)    Private Liquidator ( Voluntary Liquidators)

While the former part i.e. the official or provisional liquidator is a government / court / tribunal appointment while the Private Liquidator is appointed by the members or creditors  of a Company.

Legal Status / Qualifications / remuneration of a Liquidator

He is deemed to be an agent and Officer of the Company for certain purposes , the property of the Company does not vest with the liquidator but with the Company only. He is not an officer of the Court as he is appointed by the members of the Company. Once he is appointed the Board of Directors cease to function except for a limited purpose.

The Act does not prescribe a qualification of the person to be a liquidator , though a body corporate has been barred to act as same.  A Company Secretary can be liquidator and it seems that a firm of Company Secretaries can also be appointed as Liquidators.

There is no provision in the Act for fixing the remuneration of liquidators and the power has been given to members/ committee of inspection, once the remuneration is fixed the same cannot be increased.

WINDING UP
Now let’s understand Winding Up.
Winding up can be classified as under

In this article we are dealing with Voluntary winding up and hence the compulsory winding up process involving the court/ Tribunal is not being dealt here.

Voluntary Winding Up
Voluntary winding up is one of the simplest and time saving procedure for winding up of a company and Section 484 of the Companies Act 1956 provides the enabling provisions for the same. The Voluntary winding up can be either members or creditors.

In Members Voluntary Winding up the requirement of Solvency is a must where as in Creditors Voluntary Winding up the highlighting of insolvency may be relevant.  If one goes through the legislations carefully it seems that even financially sound companies can go for Creditors Voluntary Winding up by avoiding the filing of declaration of solvency.

Reasons for going for a Voluntary Winding Up

  1. If the existence of a Company is for a period mentioned in the Articles of Association (AoA) – then at any time after the expiry of the said period.
  2. If any event has happened and the occurrence of which has been provided in the AoA as a reason for company to be dissolved.
  3. Reorganization/ Reconstruction of the Company by transferring the assets of the Company in liquidation to new transferor company and allotting shares to the existing shareholders.
  4. End of Purpose- If the purpose for which the company has been incorporated has been lost, its better that the company may be dissolved.
  5. For any other reason the Company files a declaration of solvence

    PROCEDURE TO PUT A COMPANY INTO MEMBER’S VOLUNTARY WINDING UP.

    STEP 1: Convene a Board Meeting to transact the following business:

    (a) Make sure that the company can pay its debts in full within a period of three years if put into liquidation.

    (b) Declaration in Form No. 149 under Rule 313 of the Companies (Court) Rules, 1959, and verified by an affidavit, by the Directors sworn before a Judicial Magistrate on non-judicial stamp paper of Rs. 20/-. (c) Declaration will be accompanied by:

    i)   The audited Balance Sheet and Profit & Loss Account commencing from the date of last audited balance sheet and profit and loss account and ending with the latest practicable date before the date of declaration.

    ii)  A statement of the company’s assets and liabilities as at that date; and

    iii) A copy of the report of the auditors of the company on the above two documents.

    (d) Approve  at  the  meeting  the  draft  resolution  for  Member’s  Voluntary Winding up and for appointing Liquidator and fix remuneration and also fix the date, time, place of the general meeting.

    STEP 2:      Copies of item (b) and (c) to be filed and registered with the    Registrar at least 5   weeks before the General Meeting.

    STEP 3:        Issue notice for the general meeting proposing a Special Resolution, with suitable Explanatory Statement.

    STEP 4:      Hold the General Meeting and pass the Special Resolution for winding up. The   winding up commences from the time of passing the resolution.

    STEP 5:        Within ten days of passing of the resolution, file notice with the ROC for the appointment of the liquidator after paying the requisite fee.

    STEP 6:        Submit to the liquidator a statement on the company’s affairs in Form No.57 in duplicate, duly verified by affidavit in Form No. 58 within twenty-one days of the commencement of winding up.

    STEP 7:         File the Special Resolution passed for winding up with Explanatory statement  with   the  ROC  within  30  days  of  its  passing  in  Form  No  .23  with requisite fee.

    STEP 8:       Within 14 days of passing the resolution for voluntary winding up, give notice of the resolution by advertisement in the Official Gazette and also in some newspaper  circulating  both  in  English  and  in  Tamil,  in  the  district  where  the registered office of the company is situated.

    STEP  9:      Simultaneously  to  Step  8,  the  Liquidator  to  publish  in  the  Official Gazette the Notice of his appointment in Form No. 151 of Company Court Rules and file with Registrar the Notice of his Appointment in form 152 of Company Court Rules.

    STEP 10:   Simultaneously to Step 8, Liquidator to give notice of his appointment to the concerned Income-tax Officer under Section 178 of IT Act, 1961. No prescribed format for this intimation. Letter would be sufficient.

    STEP 11:      If the liquidator is of the opinion that the company will not be able to pay its debts in full within the period stated in the declaration of solvency, or if the period stated in the declaration of solvency has expired without the debts being paid in full, the liquidator has to summon a meeting of the creditors, and table before the meeting a statement of the assets and liabilities of the company in Form No. 150 of the Companies (Court) Rules, 1959.

    STEP  12:    Where  the  winding  up  process  continues  for  more  than  a  year, Liquidator should call a general meeting within 3 month from the end of every year  from  the  date  of  commencement  of  winding  up,  and  table  before  the meeting an account of his acts and dealings along with statement in form No 153 of the Companies (Court) Rules, which should be duly verified in Form 154 of the Company Court Rules.

    STEP 13:      If Step 11 is applicable, the Liquidator to call a meeting of creditors also within 3 months from the end of the year.

    STEP 14:     The Liquidator to file statements in the prescribed manner together with the Audit Report in the prescribed format, with the concerned Registrar of Companies twice in every year, if the liquidation is NOT completed within one year from the commencement of the winding up.

    STEP 15:    Complete the winding up by realizing all assets and paying off all liabilities and returning share  capital and surplus, if any.  The provisions of sections 426, to 432, 487, 491, 494, 511, 511A, 512, 517 to 520, 528 to 549 and 553 and those of rules from Nos. 124 to 134 and Nos: 312 to 361 of the Companies (Court) Rules 1959 should also be noted in this respect.

    STEP 16:     As soon as the affairs of the company are fully wound-up, liquidator to prepare his account of the winding up in Form No. 156 of the Companies (Court) Rules 1959 and get the same audited. The audit report should be in the format suggested by ICAI for this purpose.

    STEP 17:    Liquidator to call the final General Meeting by giving notice stating the time, place and object of the meeting, in Form No. 155 of the Companies (Court) Rules, 1959 by advertisement in the official Gazette. The Notice in the Gazette to be given not less than one month before the meeting. In addition, the notice should also be published in some newspaper circulating in the district where the registered office of the company is situated.

    STEP 18:      At the meeting, place the accounts prepared under Step 16.

    STEP 19:     At the meeting also pass a special resolution for disposal of the books and papers of the company when the affairs of the company are completely wound up and it is about to be dissolved.

    STEP 20:     Within a week of the final meeting held under Step 17, file the copy of the account with the ROC as well as with the Official Liquidator (OL) and also file a return with both in Form No. 157 of the Companies (Court) Rules 1959. If a quorum is not present  at the meeting, file the return in form no. 158 of the Companies (Court) Rules, 1959.

    STEP 21:     File the Special Resolution with the ROC, within 30 days of passing inForm No. 23 after paying the requisite fee.

    V.        SUBSEQUENT COURSE OF ACTION FROM THE ROC AND OL

    1.           The Registrar of Companies, on receiving the account and the return shall forthwith register them.

    2.            The OL on receiving the account and the return would make a scrutiny of the books and papers of the Company to ascertain as to whether the affairs of the Company has not been carried on in a manner prejudicial to the interest of its members or public, and makes a report to the concerned High Court. From the date of the submission of the report to the concerned High Court the company is deemed to be dissolved.