The main object of winding up provision is to put all unsecured creditors upon equality and then pay them pari, passu (equal footing), and to prevent the assets of the company from being frittered away in vexatious litigation. The main purpose of winding up of a company is to realise the assets and pay the debt of the company expeditiously and fairly according to the law. However, the purpose must not be exploited for the benefit or advantage of any class or person entitled to submit a petition for winding up of a company.

Why a company wound up

  • A company may voluntarily wound up its affairs, if unable to proceed with the business further.
  • It is formed for a limited time period.
  • When it is formed for a limited
  • When the company is unable to meet their financial obligation.


Benefits of winding up

  • Free from the debts after liquidation. Once the company is wound up, all the directors and company members free from the creditors’ liability and pressure.
  • No legal action against the company can be initiated once a company is dissolved.
  • All lease agreements will be cancelled, during the liquidation process the term and condition of the agreement will be terminated, if any penalty applicable then it will be deducted from the sale of assets.
  • Creditors will get the benefit after dissolution as they will be eligible for default payment, with respect to the proposition of the credits given by the creditors.

Type of Winding Up

There are two types of winding of company under section 270 of Company Act 2013     

  1. Voluntary Winding Up: – members’ and creditors’ voluntary winding up.
  2. Compulsory Winding Up: – under the Tribunal’s order.

A company may be wound up voluntarily

  • By an ordinary resolution – when the period, if an, fixed for the duration of the company by the article has expired, or the event if any, has occurred on the occurrence of which the articles provide that the company is to be dissolved, and the company in general meeting passes a resolution regulating the company to be wound up voluntarily.
  • By special resolution – if the company passes a special resolution, that the company be wound up voluntarily.

Procedure for winding up a company voluntary

  • The declaration of solvency has to be made by a majority of directors verified by an affidavit
  • The directors have to declare that they have made a full inquiry into the affairs of the company, have formed an opinion that the company has no debts, or that it will be able to pay its debts in full form from the sale of assets.
  • Notice should be issued in writing for the call of the general meeting of the company proposing the resolution.
  • Pass the ordinary resolution for winding up the company by the ordinary majority or the special majority. Winding up shall commence from the passing date of resolution.
  • Meeting of creditors shall be conducted on the same day or the next day of resolution passed. If 2/3rd of the creditors are of the opinion that it is in the interest of all the parties, the company can wind up
  • Liquidator appointed by the tribunal for the winding up process.
  • The affairs of the company wind up and prepare the liquidators’ account of the winding up account and get it audited.
  • A resolution was passed for the disposal of the book and paper of the company when the affair of the company completely wound up.
  • Within two weeks of the general meeting, file an application in the tribunal for passing the order to wind up the company.
  • Within sixty days the tribunal passed the order, either dissolving the company or rejecting the application.
  • If the order is made for dissolving the company, then a copy of the order along with a drafted report will be submitted to the registrar by the liquidator.
  • If the registrar finds the drafted report satisfactory then he approves the winding up of the company.
  • The registrar then sends the notice to publish in the official gazette of the government that this company is dissolved.
  • That notice shall be published in the official gazette of the government of India along with the local newspaper within the prescribed time.

Documents required for winding up

  • PAN card of the company.
  • Bank account closure certificate
  • Recent bank account statement of the company.
  • An indemnity bond notarised by the directors.
  • Statement of accounts related to all assets and liabilities of the company, audited by the chartered accountant CA
  • Approval of resolution by the board members.
  • Application for removing the name of the company.

Preferential payment after liquidation

In winding up the debts shall be paid in priority list

  • All revenue, taxes, ceases and rates are due from the company to the central government, state government or local authority.
  • Workmen dues, including wages of the workers and other employees.

The debts shall be paid in full before any payment is made to secured creditors and thereafter debts payable shall be paid in full, unless the assets are insufficient to meet the condition, in that case they shall abate in equal proportions. 

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