The Process of Voluntary Winding up takes place when an organization becomes insolvent or is not able to clear its liabilities. To execute voluntary winding up of a private limited company, a winding up meeting is required to be called. In order to carry out the winding up process, a resolution is passed at this meeting.
It is mandatory that either on the days fixed for General Meeting or on the very next day, the creditor’s winding up meeting should be held. The notice for this creditor’s meeting must be sent by post to each of the creditors along with the notice for the General Meeting. It is required to be published in the Official Gazette along with two newspapers which are popular in the district and are located where the registered office is.
The list of creditors with the amount outstanding for each of them along with a Statement of Affairs should be processed well in advance and should be presented during the meeting. Once the resolution is passed during creditor’s meeting, within ten working days from the date when the resolution is passed, a copy of that resolution needs to be filed with the Register.
In this creditor’s meeting, the creditors have to nominate a liquidator. The IBC Code 2016 should be kept in mind while nominating this liquidator as he would carry out all the functions of the winding up process of the company. The liquidator has to prepare a detailed list of assets and liabilities of the company. He shall also suggest a suitable process and timeline for liquidation.
The liquidator shall value, recover, sell and realize all assets of the corporate person. He is free to open a bank account for receiving money from the sale of such assets. Within 6 months of receiving these proceeds, he has to carry out the disposal of such proceedings with the stakeholders.
He is advised to keep an electronic copy of these reports. He has to save them for at least the next eight years from the date of dissolution of the corporate person. The liquidator ought to apply with NCLT for its dissolution along with final report once the winding up procedure ends.
Priority List of Creditors
The company’s that are filing for liquidation fall under two categories: 1) solvent and 2) insolvent. An insolvent company is the one which is at a shortfall of cash. Even after the liquidation of company assets, it is not possible to pay off its creditors. In such a case, there is a possibility of a conflict of interest amongst the creditors because of insufficient assets to pay all the creditors in full.
Thus, the law tries to manage equality amongst the creditors by following a transparent process to liquidate the assets of the company to be distributed equally amongst the creditors as per the size of their individual claims.
Updates in Winding Up Procedure under IBC Code 2016
The Insolvency and Bankruptcy Code, 2016 unifies the insolvency laws for the entities under a single legislation. It also governs organizations, partnership firms, and limited liability partnership firms. The Insolvency and Bankruptcy Code, 2016 has entrusted the creditors with a time-bound resolution to their insolvency process. This Code empowers creditors by giving them the freedom to lend money to Indian entrepreneurs with ease.
IBC Code 2016 or Insolvency and Bankruptcy Code 2016 must amend the various laws of Winding up of a company under the Companies Act, 2013. The definition of winding up as per IBC Code 2016, was formatted to be winding up or liquidation under the Insolvency and Bankruptcy Code 2016. All the laws of Winding up of a company under the Companies Act, 2013 section 270 that deals with the various modes of winding up were discarded and substituted by Winding up by Tribunal.
Circumstances Under Which a Company Could Be Wound up by the Tribunal Are as Follows-
- When the winding up of the company is taking place through a special resolution.
- In case it is revealed that the company has acted against the security, integrity, and sovereignty of India’s friendly relations with foreign states.
- If the Tribunal finds that the company has enacted in an unlawful manner or fraudulently.
- If the people associated with the company, especially those involved in management or decision making are found to be guilty of fraud or misconduct.
- In case, the company is found to be a defaulter in filing its financial statements for preceding financial years with Company Registrar.
- In a situation wherein the Tribunal thinks for any reason that a company should be wound up.
- The Insolvency Professionals, have replaced section 275 of Winding up of a company under the Companies Act, 2013 for the appointment of Company Liquidators who are appointed and governed by the committee under the Insolvency and Bankruptcy Code 2016.
- A total omission in Insolvency and Bankruptcy Code 2016 of section 304 for Voluntary Winding Up of the companies which was previously under Winding up of a company under the Companies Act, 2013.
The Pending Cases Were Passed on to NCLT as per the Resolution Passed on 7th Dec 2016, as per Below Criteria-
- It would be retained by the High Court if the Winding-up was happening under the supervision of the court.
- For all new cases from 1st April 2017, NCLT would be taking charge and all voluntary winding up cases filed up to 31st March 2017 would be retained by the High Court.
- When a company has to wind up due to its inability to pay, and the petition is served then the High Court will take care of it. In case of a petition, has not yet been served, in that case, it would fall under IBC 2016.
- When winding up is to be done by Court, and if the petition is served to the Respondent, then High Court will take care of it. However, if the petition has never been served to the Respondent, then it would be taken care of under Insolvency and Bankruptcy Code, 2016.
- Voluntary winding up of the procedures of a private limited company has been made part of Insolvency and Bankruptcy Code, 2016 in Chapter 5 of Part II. As per Section 59 of IBC Code 2016, a voluntary winding up can be initiated by a person from corporate who has not committed any default.