winding up

Question 1

Winding Up

define

Answer 1

The process through which a company is dissolved, ending its existence. Also referred to as “liquidation” of the company.

During winding up, the company’s assets are sold off, debts are settled,

Question 2

Modes of Winding Up

Answer 2

Winding up of a company can be done in three ways: a) by the Court, b) voluntarily, or c) subject to the supervision of the Court.

Question 3

Circumstances for Court Winding Up

13 points

Answer 3

A company may be wound up by the Court under various circumstances, including:

Resolution for winding up by special resolution
Default in delivering statutory report or holding statutory meeting
Default in holding two consecutive annual general meetings
Default in filing financial statements for two consecutive years
Reduction of members below statutory limits
Inability to pay debts
Unlawful, fraudulent, or oppressive activities
Failure to maintain proper accounts or commit fraud
Failure to follow laws, regulations, or company documents
Just and equitable circumstances
Ceasing to have a member
Cessation of licensed activity
Non-compliance by non-profit company
Failure to complete winding up for licensed company
Suspension of business for a year by listed company

Question 4

Process of Winding Up

Answer 4

The winding up process commences after a court order or a voluntary winding up resolution is passed. The company’s assets are sold, debts are paid, and any remaining surplus is distributed. The company is dissolved after the completion of winding up proceedings.

Question 5

Company Dissolution

Answer 5

Upon completion of winding up, the company ceases to exist, and its legal existence is terminated.

Question 6

Unlawful Activity Definition

Answer 6

Any scheme or business, described in any manner, shall be considered unlawful if it involves:

Accepting a deposit or contribution in cash or through coupons, certificates, tickets, etc.
Promising future payments, property, rights, or benefits based on chance or lottery.
Raising unauthorized deposits, engaging in referral marketing, multi-level marketing (MLM), Pyramid and Ponzi Schemes, locally or internationally.
Conducting any business activity against public policy or moral standards

Question 7

Assured Payments Scheme

Answer 7

Any scheme where people deposit money and are promised future payments, property, or benefits, directly or indirectly, based on chance or lottery, is deemed unlawful.

Question 8

Un-Authorized Deposits

Answer 8

Engaging in activities like raising unauthorized deposits from the public, referral marketing, multi-level marketing (MLM), Pyramid and Ponzi Schemes, whether nationally or internationally, is considered unlawful.

Question 9

Commission Notification

regarding unlawful business activity

Answer 9

The Commission has the authority to designate any other business activity as unlawful if it goes against public policy or is deemed a moral hazard.

Question 10

Inability to Pay Debts Definition

Answer 10

A company is considered unable to pay its debts if:

A creditor owed over Rs. 100,000 has issued a demand for payment.
The company neglects to pay or arrange payment within 30 days.
Execution of a court decree in favor of a creditor is unsatisfied.
The Court determines that the company cannot meet its debts.
The Court considers both current and potential liabilities.

Question 11

Creditor Demand

unbility to pay debts

Answer 11

If a creditor, to whom the company owes more than Rs. 100,000, serves a written demand for payment by registered post or through an authorized agent, and the company doesn’t pay or provide security within 30 days, it’s deemed unable to pay debts.

Question 12

Unsatisfied Execution

unability to pay debts

Answer 12

If a court decree or order in favor of a creditor is not satisfied, wholly or partially, it’s an indicator that the company cannot meet its debts.

Question 13

Court’s Determination

regarding unability to pay debts

Answer 13

The Court can conclude that a company can’t pay its debts after considering the company’s financial condition, including potential and current liabilities.

Question 14

Who may present the petition regarding petition for winding up

7 points

Answer 14

a) by the company; or
b) by any creditor or creditors (including any contingent or prospective creditor or creditors); or
c) by any contributory or contributories; or
d) by all or any of the aforesaid parties, together or separately; or
e) by the registrar; or
f) by the Commission; or
g) by a person authorised by the Commission in that behalf.

Question 15

Petition by the Company

Answer 15

The Court will not entertain a petition for the winding up of a company by the company itself until the following conditions are met:

The company provides the particulars of its assets, liabilities, and business operations.
The company furnishes the required information in the prescribed manner.
The company includes details of any ongoing suits or legal proceedings against it in the petition.

Question 16

Petition by Creditor(s)

Answer 16

The Court will not entertain a petition for the winding up of a company by a contingent or prospective creditor until the following conditions are fulfilled:

The petitioner provides reasonable security for costs, as determined by the Court.
The petitioner establishes a prima facie case for winding up to the satisfaction of the Court.

Question 17

Condition for Contributory to Petition for Winding Up

Answer 17

A contributory is eligible to present a winding-up petition for a company under the following conditions:

a) The number of members must be reduced below two for a private company or below three for a public company.

b) The contributory must have held shares, either originally allotted or obtained through the death of a former holder, in his name for at least 180 days during the 18 months before the start of the winding-up process.

Question 18

Condition for Registrar’s Petition for Winding Up

Answer 18

The registrar can only present a winding-up petition for a company under the following condition:

The previous approval of the Commission is required before presenting the petition.
The Commission’s approval is granted only after giving the company a chance to provide a representation and be heard.

Question 19

Conditions for Commission’s or Authorized Person’s Petition for Winding Up

Answer 19

The Commission or a person authorized by the Commission to do so cannot file a petition for the winding up of a company unless the investigation into the company’s affairs has revealed one or more of the following:

a) The company was established for fraudulent or unlawful purposes.

b) The company is operating a business that goes beyond the scope of its authorized memorandum.

c) The company’s business operations are oppressing its members or those involved in its formation.

d) The company’s management has engaged in fraud, misfeasance, or other misconduct toward the company or its members.

Furthermore:

The Commission must not present the petition without granting the company a chance to provide representation and be heard.
However, if the company’s sole business involves a licensed activity and that license gets revoked, no investigation is needed to present a winding-up petition for the company.

Question 20

Winding Up Commencement

Answer 20

The commencement of a company’s winding up by the Court is considered to be at the moment the petition for winding up is filed.

Question 21

Voluntary Winding Up Resolution

Answer 21

A company can undergo voluntary winding up through a resolution passed in a general meeting, either due to the expiration of a specified duration in its articles or the occurrence of an event leading to dissolution, or by passing a special resolution for voluntary winding up.

Question 22

Supervised Voluntary Winding Up Order

Answer 22

After a company has passed a resolution for voluntary winding up, the Court has the authority, either on its own initiative or upon the request of eligible parties, to issue an order allowing the voluntary winding up to proceed under the Court’s supervision. The order can include provisions for creditor and contributory involvement and other conditions as deemed appropriate by the Court.

Question 23

Jurisdiction from Supervised Voluntary Winding Up Petition

Answer 23

A petition to continue a voluntary winding up under Court supervision is treated, for legal jurisdiction purposes, as if it were a petition for winding up by the Court, granting the Court authority over lawsuits and other legal proceedings related to the winding up process.

Question 24

Winding Up Petition in Supervised or Voluntary Winding Up

Answer 24

In cases of voluntary winding up or winding up under Court supervision, a winding up petition can be filed by an individual authorized to present such petitions under Section 304. The Court can only issue a winding up order based on such a petition if it determines that the ongoing voluntary winding up or supervised winding up doesn’t adequately consider the interests of creditors and contributories, or if it’s in the public interest to do so.

Question 25

Panel for Winding Up Appointments | official liquidator

Answer 25

The Commission maintains a panel of individuals from which the Court selects a provisional manager or official liquidator for a company undergoing winding up by the Court.

Question 26

Removal from Panel

Answer 26

The Commission has the authority to remove a person's name from the panel due to reasons such as misconduct, fraud, misfeasance, breach of duties, or professional incompetence, after providing the individual with a fair chance to present their case.

Question 27

Panel Composition and Requirements

Answer 27

The panel comprises individuals with a minimum of 10 years' experience in accounting, finance, law, or other professions as specified by the Commission. Appointed persons must adhere to a code of conduct and fulfill professional accreditation program requirements set by the Commission

Question 28

Winding Up Panel Criteria

Answer 28

The panel is composed of individuals with a minimum of 10 years' experience in accounting, finance, or law, along with those having a decade of professional experience as determined by the Commission. Appointees are expected to adhere to a specified code of conduct and meet the conditions of relevant professional accreditation programs set by the Commission.

Question 29

Restriction on Appointments

Answer 29

An individual is prohibited from being appointed as provisional manager or official liquidator for more than 3 companies simultaneously.

Question 30

Restriction on Provisional Manager's Powers

Answer 30

The Court, when appointing a provisional manager, has the authority to restrict and limit their powers either in the initial appointment order or through a subsequent order. However, the provisional manager generally holds the same powers as a liquidator.

Question 31

Declaration and Security by Liquidator

Answer 31

After being appointed as provisional manager or official liquidator, the liquidator is required to submit a declaration within 7 days, using the specified form, indicating any conflicts of interest or lack of independence related to the appointment. This obligation remains in effect throughout their term. The Court is empowered to decide whether and what kind of security is needed from an official liquidator upon their appointment.

Question 32

Provisional Manager as Official Liquidator

Answer 32

In the process of issuing a winding up order, the Court has the discretion to designate a provisional manager, if already appointed, to also serve as the official liquidator for overseeing the company's winding up proceedings.

Question 33

Multiple Official Liquidators

Answer 33

When multiple individuals are appointed as official liquidators, the Court will determine whether actions mandated or allowed by the Act to be performed by the official liquidator should be executed by all or any specific person(s) among them. In case of disagreements among the liquidators, the Court will address the issue and make an appropriate order in chambers with the involved parties present.

Question 34

Appointment of Non-Panel Official Liquidator

Answer 34

With creditor support of at least 60% of the issued share capital of the company in winding up, the Court, following notice to the registrar, has the authority to appoint an individual not listed on the designated panel as the official liquidator.

Question 35

Resignation, Casual Vacancy, and Replacement of Official Liquidator

Answer 35

An official liquidator can only resign or quit their position during the liquidation proceedings for personal disability reasons approved by the Court. If a casual vacancy arises due to death, removal, or resignation, the Court will appoint another person from the panel to fill the vacancy. In the event of resignation, the departing official liquidator will continue until the replacement assumes charge, unless directed otherwise by the Court.

Question 36

Statement of Affairs Submission to Official Liquidator

Answer 36

When a provisional manager or an official liquidator is appointed due to a winding up order by the Court, a verified statement regarding the company's affairs must be prepared and provided in the specified form. This statement includes details about assets, debts, liabilities, cash balances, creditors, properties not in custody, business locations, pending legal actions, and any additional particulars ordered by the Court, provisional manager, or official liquidator.

Question 37

Relevant Date and Time Limit for Statement of Affairs

Answer 37

The term "relevant date" refers to the date of appointment of a provisional manager if applicable, or the date of the winding up order if no such appointment is made. The statement of affairs should be submitted within 15 days from the relevant date, or within a maximum extension of 45 days from that date if granted by the official liquidator, provisional manager, or the Court based on special reasons.

Question 38

Obligation to Submit and Verify Statement of Affairs

Answer 38

The statement of affairs must be submitted and verified by individuals holding the positions of directors, chief executive, chief financial officer, and secretary of the company on the relevant date. The provisional manager or official liquidator, under Court guidance, can also request a statement from individuals involved in the company's formation, its recent officers, or employees who can provide relevant information. Those preparing the statement are entitled to reasonable expenses from the official liquidator or provisional manager for its preparation.

Question 39

Penalty for Non-Compliance and Court's Authority

Answer 39

Failure to adhere to the mentioned requirements constitutes an offense subject to a daily penalty of level 2 on the standard scale. In addition to other penalty provisions, the Court that issues the winding up order or appoints a provisional manager holds the authority to recognize the offense, conduct its trial as per the procedure defined in the Code of Criminal Procedure, 1898, and instruct the individuals involved to comply with the specified provisions within designated timeframes.