winding up Flashcards

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1
Q

Winding Up

define

A

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,

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2
Q

Modes of Winding Up

A

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.

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3
Q

Circumstances for Court Winding Up

13 points

A

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

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4
Q

Process of Winding Up

A

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.

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5
Q

Company Dissolution

A

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

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6
Q

Unlawful Activity Definition

A

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

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7
Q

Assured Payments Scheme

A

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.

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8
Q

Un-Authorized Deposits

A

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.

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9
Q

Commission Notification

regarding unlawful business activity

A

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.

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10
Q

Inability to Pay Debts Definition

A

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.

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11
Q

Creditor Demand

unbility to pay debts

A

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.

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12
Q

Unsatisfied Execution

unability to pay debts

A

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.

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13
Q

Court’s Determination

regarding unability to pay debts

A

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

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14
Q

Who may present the petition regarding petition for winding up

7 points

A

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.

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15
Q

Petition by the Company

A

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.

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16
Q

Petition by Creditor(s)

A

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.

17
Q

Condition for Contributory to Petition for Winding Up

A

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.

18
Q

Condition for Registrar’s Petition for Winding Up

A

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.

19
Q

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

A

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.

20
Q

Winding Up Commencement

A

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.

21
Q

Voluntary Winding Up Resolution

A

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.

22
Q

Supervised Voluntary Winding Up Order

A

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.

23
Q

Jurisdiction from Supervised Voluntary Winding Up Petition

A

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.

24
Q

Winding Up Petition in Supervised or Voluntary Winding Up

A

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.

25
Q

Panel for Winding Up Appointments

official liquidator

A

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.

26
Q

Removal from Panel

A

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.

27
Q

Panel Composition and Requirements

A

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

28
Q

Winding Up Panel Criteria

A

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.

29
Q

Restriction on Appointments

A

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

30
Q

Restriction on Provisional Manager’s Powers

A

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.

31
Q

Declaration and Security by Liquidator

A

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.

32
Q

Provisional Manager as Official Liquidator

A

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.

33
Q

Multiple Official Liquidators

A

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.

34
Q

Appointment of Non-Panel Official Liquidator

A

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.

35
Q

Resignation, Casual Vacancy, and Replacement of Official Liquidator

A

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.

36
Q

Statement of Affairs Submission to Official Liquidator

A

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.

37
Q

Relevant Date and Time Limit for Statement of Affairs

A

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.

38
Q

Obligation to Submit and Verify Statement of Affairs

A

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.

39
Q

Penalty for Non-Compliance and Court’s Authority

A

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.