What Is Winding Up?

Windup of the company means liquifying the assets which are collected and sold to pay the debts of the company. The first step of winding up is to clear the debts, expenses, and costs that are paid away among the shareholders. Once all the company assets are liquidated, it is formally dissolved and ceases to exist.

Winding up is the legal procedure to shut down the company and the assets are monitored so that stakeholders interest is not hampered.

It is quite challenging to file all the complaints and maintain a private limited company. It is advisable to shut down an inactive company. Shareholders can initiate the winding-up process anytime they want. If there are secured or unsecured creditors, all dues need to be cleared before winding up the company. After clearing all the debts and dues, it is mandatory to close all the bank accounts of the company. Also, the GST registration must be surrendered during the wind-up process.

After surrendering all the registration, the wind-up petition can be filed with the Ministry of corporate affairs.

Reasons to wind up a company

  • The company is not able to fill all the compliances regularly and avoid compliance responsibility.
  • The company is inactive and business activities are ceased.
  • A dispute among shareholders under Section 216 of the companies act.
  • Corporate or financial restructuring of the group to which the company belongs.
  • Statutory provisions or any offense committed by the company
  • Company acting outside its ordinary course of business.

Types of Company windup

A company can be wound up in two ways that are: Voluntary Winding up of a company and Compulsory winding up.

1. Voluntary Windup
The voluntary windup of the company can be done when:

  • The company passes a special resolution to wind up the company
  • Shareholders passed a resolution to avoid bankruptcy

Voluntary Process of Winding up a Company

  • A meeting will be conducted with all the Directors to pass the resolution.
  • The company will clear all the debts before initiating the windup process
  • A written notice will be issued to call a general meeting to propose the resolution with an adequate explanatory statement.
  • Passing of the resolution with the ordinary majority or special resolution by ¾ majority. The winding-up of the company will be announced from the date of passing the resolution.
  • After passing the resolution, a creditor’s meeting should be conducted. If ⅔ creditors vote to wind up the company, then the company can be wound up voluntarily.
  • A notice of appointment of liquidator must be filed with the registrar of companies, within 10 days of passing the resolution.
  • Within 30 days of the general meeting, a certified copy of the resolution shall be passed in the special meeting.
  • The affairs of the company will wind up the company and prepare the liquidators to audit the winding-up process.
  • Commencement of the final general meeting
  • When the company is about to be dissolved, a special resolution is to be passed to dispose of all the books and papers of the company.
  • Within the two weeks of the general meeting, an application was filed to the tribunal to pass the order of dissolution of the company.
  • A tribunal has to pass an order of dissolving the company within 2 months of receiving the application
  • The liquidator will file a copy of the order with the registrar.
  • After receiving the copy of the order, the registrar will publish a notice in the official gazette that the respective company is dissolved.

2. Compulsory Windup of LLP

Tribunal is responsible for closing the company. Here are a few reasons

  • Unclear debts
  • Special resolution passed
  • Offensive act by the company
  • Annual returns are not filed for five years straight
  • Order of legal authorities

Compulsory Wind Up Procedure

  1. A petition should be filed with the tribunal along with the company statement to wind up.
  2. The tribunal might approve or disapprove the petition and should be done within 30 days of submitting a statement of affairs
  3. Tribunal will hire a liquidator to monitor the liquidation proceedings.
  4. The liquidator will prepare a report on the final windup of the company.
  5. A liquidator will submit the report to ROC within 30 days. On failure, a penalty will be imposed on the liquidator.
  6. After checking all the documents, ROC will approve the windup process.
  7. ROC will publish the winding up of the respective company in the Gazette of India.

Frequently Asked Questions

What does it mean to wind up a company?

Winding up a company means to shut down the company by following the legal procedure usually via liquidation.

What are the consequences of winding up a company?

Winding up doesn’t remove the existence of the company. The company exists till its dissolution but as an entity. All the business is an administrator by liquidator during the liquidation.

When should you wind up a company?

If a company can’t clear the debts of £750 or more, and all the shareholders are ready, a director of the company can apply to the court for the winding up. That means a company should stop trading and be liquidated.

Can I start a new company after liquidation?

Using the same name of the company or a similar company name following the liquidation of your old company is a legal offense. One must inform all the creditors of the previous company that you are running a company with the same name.