Chapter 12 Flashcards
Winding Up?
Winding Up: The process of dissolving a company, also known as liquidation.
Process:
Disposal of company assets.
Payment of debts from realized assets or contributories.
Distribution of any surplus among members in proportion to their shareholding.
The company is dissolved after completing the winding up proceedings and ceases to exist.
Modes of Winding Up:
Modes of Winding Up (Sec 293)
By the Court
Voluntary
Subject to the Supervision of the Court
Sequence of events during winding up:
Sequence of Events:
Petition for winding up
Appointment of Provisional Manager
Winding up order and Appointment of Official Liquidator
Getting prepared Statement of Affairs
Report to the Court
Procedures for winding up
Distribution of the Funds
Dissolution of Company
Circumstance for winding up by court?
Circumstances for Winding Up by Court (Sec 301):
Resolution by special resolution to wind up by the Court.
Default in holding statutory meeting or delivering statutory report.
Default in holding two consecutive AGMs.
Default in filing financial statements or annual returns for two consecutive years.
Reduction in number of members below 3 (public company) or 2 (private company).
Inability to pay debts.
Ceasing to be a listed company, if applicable.
Just and equitable grounds for winding up.
Ceasing to have a member.
Sole business is licensed activity with revoked license.
Revocation of license under section 42 or failure to comply with requirements.
Suspension of business for one year by a listed company.
Engaging in unlawful or fraudulent activities.
Carrying on business prohibited or restricted by law.
Conducting business in a manner oppressive to minority members or those involved in formation.
Mismanagement, failure to maintain accounts, or fraud.
When is a person deemed unable to pay debts?
Deemed Unable to Pay Debts (Sec 302):
Creditor’s demand exceeding Rs. 100,000 and company’s failure to pay within 30 days.
Court order in favor of creditor remains unsatisfied.
Proof to Court of the company’s inability to pay debts.
Schemes that are unlawful as per Law:
Promotion of Unlawful Schemes:
Unauthorized deposits, referral marketing, MLM, pyramid schemes, etc.
Business activities deemed against public policy or moral hazard.
Conditions for Applicants for filing petition (Sec 304):
Contributory: Must be a member with shares held for at least 180 days in the 18 months before commencement of winding up.
Registrar: SECP sanction required before presenting the petition.
SECP or Its Officer: After investigation revealing fraud, unlawful purpose, or mismanagement.
Creditor (Contingent/Prospective): Security for costs may be required; a prima facie case for winding up must be established.
Company: Must furnish particulars of assets, liabilities, and business operations.
Appointment of Official Liquidator
Panel Maintained by SECP (Sec 315):
Panel includes persons with at least 10 years of experience in accounting, finance, or law.
SECP maintains and may remove persons from the panel based on misconduct or incompetence.
Court may appoint a person other than panel members if creditors hold 60% of share capital due.
Requirements:
Not to hold more than 3 companies’ positions simultaneously.
File declaration of conflict of interest within 7 days.
Continue to act until a replacement is appointed in case of resignation.
Commencement of Winding Up (Sec 306):
Winding up by the Court commences at the presentation of the petition.
Report to the court
Timing: Report within 60 days from the date of the winding up order.
Content:
Assets: Nature and details, including location and current value.
Cash and Securities: Balance in hand, at the bank, and negotiable securities.
Capital: Authorized and paid-up capital.
Liabilities: Existing and contingent liabilities, secured and unsecured debts.
Debtors and Creditors: Details of debts due to and from the company.
Intellectual Property: Trademarks and intellectual properties owned.
Contracts: Details of subsisting contracts, joint ventures, and collaborations.
Legal Cases: Pending legal cases.
Additional Information: Any other information as directed by the Court.
Other Reports:
Viability Report: On the company’s business viability and asset maximization.
Further Reports: Additional reports if necessary or directed by the Court.
Certified Copies: To be sent to the registrar along with submission to the Court.
STEP #2: APPOINTMENT OF PROVISIONAL MANAGER (Sec 315)
Court may appoint a Provisional Manager until winding up order is made.
PM has same powers as Official Liquidator unless restricted.
Other Modes of Winding Up
Voluntary Winding Up (Sec 347):
Conditions:
General Meeting Resolution: If a resolution is passed at a general meeting requiring voluntary winding up.
Event Fixed by Articles: Expiration of the period fixed by articles or occurrence of a specified event.
Special Resolution: Company passes a special resolution for voluntary winding up.
Winding Up Subject to Supervision of the Court (Sec 381, 382):
Court Supervision:
Request: Court may supervise voluntary winding up upon request or on its own motion.
Terms and Conditions: Court may impose terms and conditions for supervision.
Conversion to Court Winding Up (Sec 305):
Petition: Petition to convert voluntary or supervised winding up to court winding up if necessary for creditor or public interest.
Additional Considerations:
Suspension of Voluntary Winding Up: If court orders, the voluntary winding up may be suspended and converted into a court winding up.
Statement of Affairs
Timing (Sec 320):
Preparation: Within 15 days from the relevant date, or up to 45 days if extended.
Relevant Date: Date of appointment of PM or date of winding up order if no PM is appointed.
Who Prepares:
Individuals: Directors, chief executives, CFOs, secretaries, or employees at the relevant date.
Content:
Assets and Liabilities: Detailed list of assets, debts, liabilities, and cash balances.
Creditors: Names and addresses, secured and unsecured debts, and securities given.
Property Not in Custody: Details of property not in custody or possession.
Business Addresses: Full addresses and persons in charge.
Pending Suits: Details of pending suits or proceedings.
Additional Information: As prescribed or ordered by the Court/PM/OL, including secret reserves and personal assets of directors.
Inspection: Creditors or contributories can inspect the statement on payment of prescribed fee.
