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TMI BlogCORPORATE RESTRUCTURING - WINDING UPX X X X Extracts X X X X X X X X Extracts X X X X ..... p even when it is perfectly solvent. A company can never be declared bankrupt although it is unable to pay its debts. It can only be wound up. Winding up and Dissolution The entire procedure for bringing about a lawful end to the life of a company is divided into two stages - 'winding up' and 'dissolution'. Winding up is the first stage in the process whereby assets are released, liabilities are paid off and the surplus, if any distributed among its members. Dissolution is the final stage whereby the existence of the company is withdrawn by the law. Winding up in all cases does not culminate in dissolution. Even after paying all the creditors there may still be a surplus, company may earn profits during the course of beneficial winding up, there may be a scheme of compromise with creditors while company is in winding up and in all such events the company will in all probability come out of winding up and hand over back to shareholders/ old management. Dissolution is an act which puts an end to the life of the company. As such winding up is only a process while the dissolution puts an end to the existence of the company. Who may make Petition for Winding Up? An application to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. * When there is a "bubble" and has no business to carry on * Where the company is insolvent and its business is being carried on for the benefit of the debenture holders. * Where there has been Mis - management and misapplication of funds * Where the petitioner was excluded from all participation in the business of a private company. (g) if the company has made a default in filing with the Registrar its balance sheet and profit and loss account or annual return for any five consecutive financial years (h) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality (i) if the Tribunal is of the opinion that the company should be wound up under the circumstances specified in section 424G i.e. Winding up of sick industrial company 2. Voluntary Winding up - In voluntary winding up the company and its creditors are left to settle their affairs without going to Tribunal, although they may apply for directions or orders, as and when necessary. One or more liquidators are to be appointed by the company in general meeting for the purpose of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 511, 512, 513, 514, 515, 516, 517, 518, 519, 520, 521 of Companies Act and these apply to every type of volunatry winding up whether it be a members' or a cerditors winding up. Consequences of Winding up Order- * Order for winding up to be communicated to Official Liquidator and Registrar * Where the Tribunal makes an order for the winding up of the company, the Tribunal, shall within a period not exceeding two weeks from the date of passing of the order, cause intimation thereof to be sent to the Official Liquidator and the Registrar. * On the making of a winding up order, it shall be the duty of the petitioner in the winding up proceedings and of the company to file with the Registrar a certified copy of the order, within thirty days from the date of the making of the order. * When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the Tribunal and subject to such terms as the Tribunal may impose. * Where any company is being wound up by the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Companies Act if a body corporate which is a contributory is ordered to be wound up, either before or after it has been placed on the list of contributories - (a) the liquidator of the body corporate shall represent it for all the purposes of the winding up of the company and shall be a contributory accordingly, and may be called on to admit to proof against the assets of the body corporate, or otherwise to allow to be paid out of its assets in due course of law, any money due from the body corporate in respect of its liability to contribute to the assets of the company; and (b) there may be proved against the assets of the body corporate the estimated value of its liability to future calls as well as calls already made. Liability as contributories of present and past members In the event of a company being wound up, every present and past member shall be liable to contribute to the assets of the company to an amount sufficient for payment of its debts and liabilities and the costs, charges and expenses of the winding up, and for the adjustment of the rights of the contributories among themselves, subject to the provisions of section 427 and subject also to the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) The debts payable under clause (a) and clause (b) above shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. Section 530 of the Companies Act provides for list of debts to be paid in priority to all other debts that in winding up subject to provisions of Overriding preferential payments as discussed above. Provisions of Liability for fraudulent conduct of business in the course of the winding up of a company - Section 542 If in the course of the winding up of a company, it appears that any business of the company has been carried on, with intent to defraud creditors of the company or any other persons, or for any fraudulent purpose, the Tribunal, on the application of the Official Liquidator or any creditor or contributory may, if it thinks fit, declare that any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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