Winding Up of Private Limited Company

Procedure for Winding Up of a Private Limited Company

Winding up a private limited company can be executed through two primary processes:

1. Voluntary Winding Up
2. Compulsory Winding Up (by the NCT)

Voluntary Winding Up of a Private Limited Company

Voluntary winding up hinges upon the shareholders’ decision. It can be initiated by passing either a special resolution or a resolution during a general meeting of the company. The decision to wind up can be triggered by the expiration of the time period stated in the Articles of Association (AOA) or the occurrence of an event specified for dissolution.

Voluntary winding up can take two forms:

Member’s Voluntary Winding Up:

– The directors of the private limited company affirm the solvency of the company through a declaration presented on affidavit. This declaration must be made within five weeks preceding the date of the resolution for winding up.
– The declaration, along with the latest profit/loss statement, balance sheet, and statement of assets and liabilities, is submitted to the Registrar of the Company.
– Subsequent steps include formal declaration by the Registrar, appointment of a liquidator, collection of assets, and settlement of debts.

Creditor’s Voluntary Winding Up:

– If the directors fail to declare solvency, the company is presumed insolvent. In this case, creditors convene to pass a resolution for winding up.
– Steps involve passing a winding-up resolution in a general meeting, convening a creditors’ meeting, appointing liquidators, and incorporating a Committee of Inspection.

Procedure for Voluntary Winding Up:

1. Directors declare solvency in a board meeting, verifying through an affidavit that the company can clear all debts. The date of the general meeting should be set five weeks from the board meeting.
2. Notice regarding the meeting date is issued by the director(s).
3. Either an ordinary resolution passed in the general meeting or a special resolution passed with a 3/4th majority initiates the process.
4. If creditors agree, notification is sent to the Registrar of the Company within ten days of the resolution.
5. Registrar appoints a Liquidator.
6. Liquidator prepares a report, requests the company to file a statement of accounts in a general meeting, and sends the report to the Tribunal within 14 days.
7. Tribunal orders dissolution within 60 days.
8. Liquidator forwards the order copy to the Registrar within 30 days.
9. Registrar publishes the winding-up order in the Official Gazette.

Compulsory Winding Up of a Private Limited Company

Compulsory winding up occurs when the company is engaged in fraudulent or unlawful activities. The National Company Tribunal or court handles the process.

Procedure for Compulsory Winding Up:

1.  A petition, accompanied by a statement of affairs, is filed.
2. The tribunal/court scrutinizes the petition’s credibility before acceptance or rejection.
3. A liquidator is appointed.
4. The liquidator assesses company assets, examines accounts, and prepares a draft report.
5. The report is submitted to the winding-up Committee for approval, then to the Tribunal/court.
6. Once the order is passed, the liquidator informs the Registrar within 30 days.
7. Registrar approves winding up and strikes off the company from the Register of Companies.
8. Notice for publication of winding up in the Official Gazette is issued.

Companies (Winding-Up) Rules 2020

Under the Companies Act 2019, the Ministry of Corporate Affairs introduced the Companies (Winding-Up) Rules 2020. These rules streamline the winding-up procedure under Section 271 and Summary Procedure for Winding Up under Section 361 of the Act, effective from April 1, 2020. The rules provide formats for various forms required in the process.