MEMBERS’ VOLUNTARY WINDING UP
Voluntary Winding up is a process wherein the company no longer wants to carry on its operations, and decides that the company should be wound up, and the assets and liabilities settled. In voluntary winding up the company and its creditors are left to settle their affairs without going to a Court, although they may apply to the Court for directions or orders, if and when necessary.
Section 484 specifies the following circumstances in which a Company may be wound up voluntary:-
1. If the period fixed by the Articles for the duration of the Company has expired; or
2. The event on the happening of which the articles provide that the Company is to be dissolved has occurred; or
3. The Company resolved by a special resolution to be wound voluntarily.
Members’ Voluntary winding up is possible only in the case of solvent Companies. It requires the filing of a declaration of solvency by the directors of the Company with the Registrar. The members in this case appoint the liquidator.
Procedure:
1. Convene a Board Meeting by issuing notices to the directors of the Company as per section 286 of the Companies Act, 1956, within five weeks immediately preceding the date of resolution for winding up for approving the draft of the resolution for putting the company into members’ voluntary winding up, appointing liquidator(s), fixing their remuneration and also to fix the date, time, place and agenda of the General Meeting.
2. At this Board Meeting, the majority of the Directors shall make a Declaration of solvency in Form No. 149 prescribed under Rule 313 of the Companies (Court) Rules, 1959 and verified by an affidavit before a Judicial Magistrate, to the effect that they have made full inquiry into the affairs of the Company and Company can pay its debt in full within a period of three years from the date of resolution passed in the General Meeting. The declarations should be accompanied by:-
(i) the audited balance sheet and the profit & loss account commencing from the date of the last audited balance sheet and the profit & loss a/c ending with the latest practicable date before the date of declaration,
(ii) a statement of the Company’s assets and liabilities as at that date; and
(iii) a copy of the report of the auditors of the Company on the above two documents [Section 488(2)]
3. Deliver the declaration of solvency to the Registrar of Companies before the General Meeting is held for passing the special resolution for winding up. [Section 488 (2) (a)]
4. Issue notices for calling the General Meeting at least 21 days [or such time as prescribed under the Articles of Association of the company) before the meeting.
5. Hold the General Meeting and pass:-
(i) the Special Resolution for winding up,
(ii) ordinary resolution for appointment and remuneration of liquidators,
(iii) special resolution for delegation of certain powers to liquidators.
Winding up shall be deemed to commence from the time of passing the resolution. [Section 486]
6. In case of listed Company, forward three copies of the notice and a copy of the proceedings of the General Meeting to the stock exchange.
7. The company shall hold a general meeting and resolve to appoint one or more liquidators (body corporate shall not be qualified for appointment as liquidator under Section 513) for the purpose of winding up. Within ten days of the passing of the resolution, file notice with the Registrar of Companies for the appointment of liquidator [Section 493 (2)]
If default is made in filing above notice, Company and every officer (including every liquidator) who is in default punishable with the fine of up to Rs.1000/- for every day during which default continue’s.
8. Within 21 days of the passing the special resolution or within such extended time not exceeding three months from that date, submit to the liquidator a statement on the Company’s affairs in Form No 57 in duplicate. This statement shall contain the following particulars:-
(i) the assets of the company, stating separately the cash balance in hand and at the bank, if any, and the negotiable securities, if any, held by the company;
(ii) its debts and liabilities;
(iii) the names, residences and occupations of its creditors, stating separately the amount of secured and unsecured debts; and in the case of secured debts, particulars of the securities given, whether by the company or an officer thereof, their value and the dates on which they were given;
(iv) the debts due to the company and the names, residences and occupations of the persons from whom they are due and the amount likely to be realised on account thereof;
(v) such further or other information as may be prescribed, or as the Liquidator may require.
This statement has to be verified by affidavit in Form No. 58 [Section 454 read with Section 511A and Rule 127 of the Companies (court) Rules, 1959] by the director on the date of commencement of winding up and by the manager, secretary or other chief officer.
9. File the Special Resolution for winding up with the explanatory statement with the Registrar of Companies within 30 days of passing the resolution in Form No. 23 of the Companies (General Rules & Forms), 1956.
10. Within 14 days of the passing of the resolution, give notice of the resolution by advertisement in the Official Gazette and also in newspaper circulating in the district where the registered office of the Company is situated (section 485). If default is made in complying with the above requirement, Company and every officer of the Company who is default punishable with fine up to Rs. 500/- for every day during which default continue.[section 485 (2)]
11. In case of listed Company, forward three copies of the notice of the resolution advertised to the stock exchange.
12. Ensure that the liquidator files the notice of his appointment with the Registrar of Companies in Form No. 152 of the Companies (Court) Rules, 1959 and publish in the Official Gazette in Form No. 151 of the Rules within 30 days of his appointment [Section 516 and rule 315].
13. Also ensure that liquidator gives notice of his appointment to the Income Tax officer of the Company within 30 days of his appointment.
14. If any vacancy occurs by death, resignation or otherwise in the office of the liquidator, the Company in General Meeting can fill the vacancy subject to any arrangement with its creditors [Section 492] and inform the Registrar of Companies.
15. In the event the winding up continues for more than a year, call a General Meeting at the end of the first year or within 3 months from the end of the year or such longer period allowed by Central Government and lay before the meeting, the liquidator’s account of his acts along with the audited statements in Form No. 153 verified in Form 154 of the said rules. [Section 496 and rule 327]. Failing to do so, liquidator will be punishable with fine of Rs. 1000/-.
16. If winding up is not concluded within a year after its commencement, then the liquidator shall file statements with the Registrar of Companies once in the first year and twice in subsequent year (Rule 327).
17. Get the first year’s statement audited for the full year (period commencing from the date of appointment of the liquidator to the end of twelve months from the commencement of the winding up) and thereafter-subsequent statement every six months in Form No. 153 of the prescribed rules.
18. These statements should be verified in Form No. 154 of the said rules, placed before the General Meeting of the members’ (rule 328) and filed with Registrar of Companies in duplicate within 2 months from the first year end or the subsequent half year ends(Section 551 and Rule 327).
19. As soon as the affairs of the Company are fully wound up (when the disbursements of assets and liabilities are through and the liquidator cannot do anything further) prepare the liquidator’s account of the winding up in Form No. 156 of the rules and get the same audited in manner as mentioned above. [Section 497]
20. Call the final General Meeting for placing liquidator’s account in Form 156 & explanation thereof, by giving notice in Form No. 155 of the said rules, by giving an advertisement in the Official Gazette not less than 1 month before the meeting and also in the newspaper circulating in the district where the registered office of the Company is situate. [Section 497 and rule 329].
For not calling final General Meeting as mentioned above, the liquidator will be punishable with fine up to Rs 5000/-.
21. Pass Special Resolution for disposal of the books and papers in the final General Meeting of the Company when the affairs of the Company are completely wound up and it is about to be dissolved [Section 550] and file the special resolution with the Registrar of Companies within 30 days of passing in Form No. 23.
22. Within one week of the final meeting, the liquidator must send to Registrar and the official liquidator (no fee is required for filing a copy of this return with the official liquidator), a copy of the accounts and make a return of the holding of the meeting in Form No. 157 of the said rules.
Failing to do so, liquidator will be punishable with the fine up to Rs. 500/- for every day during which the default continues. [Section 497(3)].
If a quorum is not present at this meeting, the return shall be in Form No. 158.
23. The Registrar of Companies on receiving the account and the return shall forthwith register them. [Section 497(5)]
The dissolution takes place on the expiry of three months from the date of registering by the Registrar and not from the date of filing of it by the liquidator as per Shaw Brothers vs. Army Canteen Board, AIR 1931 Lah 500 : (1931) 1 Com Cases 147.
24. The official liquidator on receiving the account and the return will scrutinize all books and papers of the Company and makes a report to the Court, that the affairs of the Company have not been conducted in manner prejudicial to the interest of its member and to the public interest.
From the date of the submission of the report to the Court the Company shall be deemed to be dissolved.
In case official liquidator makes a report to the Court that the affairs of the Company have been conducted in a manner prejudicial to the interest of its member or to public, the Court shall by order direct him to make further investigation and for that purpose shall invest him all such power as the Court may deem fit.
25. On receipt of the report of the official liquidator on such further investigation, the Court may either make an order that the Company shall stand dissolved with effect from the date to be specified by the Court or make such order as the circumstances of the case brought out in the report.
On the basis of the findings of the Vivian Bose Commission and the recommendation made by the Daphtary sastri committee, a company which has been brought under voluntary liquidation should not be dissolved until the official liquidator has scrutinized the books and papers of the company and made a report to the court that its affairs have not been conducted in a manner prejudicial to the interests of its members or the public interest. The committee felt that in order to avoid delay in the liquidation proceedings, the official liquidator should be given requisite information as soon as final meetings are held by the companies concerned, accepting final dissolution, so that the official liquidator could keep in touch with the affairs of such companies and there is no delay in his report to the court.
26. File a certified order of the Court along with Form No. 21 of the Companies (Central Government) General Rules & Forms, 1956, within 30 days of obtaining it, with the concerned Registrar of Companies. (Section 559(2)]
27. The Court may in a fit case declare the dissolution void within 2 years of the date of the dissolution on application by the liquidator of the Company or by any person who appears to the Court to be interested.
Note: The power vested with the High Court has been transferred to the National Company Law Tribunal consequent to the Companies (Second Amendment Act), 2002.
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