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3 Methods of Winding up of a Company?

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What is winding up of a company?

Winding up of a company means the end of the life of a company. It is the permanent closing down of its business.

A company is the creature of law. It, therefore, cannot die a nature death. The termination of its existence is affected by law. Thus winding up of the company is a legal procedure in which all the affairs of the company are wound up its assets and liabilities are determined assets are sold out and claims of the creditors met out of sale proceeds. The balance if any is distributed among shareholders in proportion of their shareholdings. This work is done the liquidator.

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Methods or modes of winding up of a Company.

According to the companies ordinance 1984 a company can be wound up in the following three ways or you can say these are the types of winding up of a company.

  1. Winding up by court
  2. Voluntary winding up
  3. Winding up subjects to the supervision of the court.

These three modes of winding up of a company are now discussed in brief.

  1. Winding up of a company by the court.

The main grounds for winding up by the court are as under;

  1. By special resolution:

A special resolution has been passed by the company to be wound up by the court.

  1. Default in delivering statutory report:

A public company is wound upon the ground that it has not held.

  1. Statutory meeting and submitted statutory report to the registrar or has not held two consecutive annual general meetings.
  1. Delay in commencement of Business is another ground: If a public company does not commence business within one year of the date of its incorporation or suspends business for a whole year, the court may order its winding up.
  2. Members reduced below a minimum. A public company may be wound up if its members are reduced below seven.(Less than two in case of private company Ltd.)
  3. Failure to pay a debt. A public company may be wound up by the court; if it is proved that it is unable to pay its debts.
  4. Ceases to be a listed company: the court may wind up a company if it ceases to be a listed company.

2. Voluntary winding up of a company.

The voluntary winding up of the company is of two kinds

        A. Members voluntary winding up

        B. Creditor’s voluntary winding up.

A.  Members Voluntary winding up:

In a case of members voluntary winding up, the directors declare in the meeting of shareholders that the company is fit for liquidation. The company is solvent. The meeting then passes a resolution for voluntary winding up and appoint liquidates them. The voluntary winding up of the company by the members themselves may take place under the following circumstances.

  1. Expiry of period:

If the period fixed for the duration of the company in the articles has expired. The company may be wound up voluntarily by passing a resolution in the general meeting.

       2. By special resolution:

If the company resolves by a special resolution that the company is wound up, the company then will be put to an end.

       3. Declaration of solvency:

If the majority of directors in a special board meeting resolved to wind up the company and submit a statutory declaration verified by the company’s auditor to the registrar of the joint stock companies that the company
(a) has no debts
(b) is able to pay its debts in full within a period not exceeding one year from the commencement of winding up.

        4. Appointment of liquidators:

The company in general meeting of the shareholders shall appoint one or more liquidators for the purpose of winding up the affairs and distributing the assets of the company.

The shareholders fix the remuneration to be paid to the liquidator. On the appointment of a liquidator, all powers of the directors and other officers of the company shall cease, except so far as the company in general meeting or the liquidator sanction the power to remain with them.

       5. Final meeting and dissolution:

When the affairs of the company are finally wound up, the liquidator shall call a general meeting of the shareholders and place before them the full accounts of the company and send its copy to the registrar within one week of the meeting.

                The company shall be dissolved on the expiration of three months on the receipt of the copy of the account and other relevant documents from the liquidator.

   B. Creditors voluntary winding up:

A winding up in the case of which a declaration of solvency has not been delivered to the registrar is known as creditor’s voluntary winding up. The company calls a meeting of its creditors and appoints a liquidator.

When liquidation is complete, the liquidator calls the final meeting of the company and the creditors and places before them the full account.

A copy of his report is also sent to the registrar. The registrar on receiving the accounts and other documents takes the action of dissolution of a company as laid down in the company’s ordinance.

  1. Voluntary winding up of a company subject to supervision of court:

According to company’s ordinance, a voluntary winding up of a company can also be carried under the strict supervision of the court. When a company has passed resolution for voluntary winding up, the court may of its own motion or on the application of any person entitled to apply to the court for winding up of a company, makes an order that voluntary winding up shall continue but subject creditors, contributions or other to apply to the court and generally on such terms and conditions as the court thinks just.

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