Modes, Process of Liquidation and Winding up of a Company Law

How to wind up a private limited company? A private limited company require to be windup or closed if the Director of the company is not willing to continue its services which is known as a voluntary windup, and the other is compulsory winding up. Winding private limited company is a pursuit that involves bargaining of all the assets, paying off the banks and managing the remaining assets by the shareholders of the company. 

The Ministry of Corporate Affairs (MCA) has notified latest rules for winding private limited company without going through a tribunal, the provisions of the Companies Act now provide an alternative for the commonly used liquidation process as per India's Bankruptcy Code. Company Law scope in India is extensive and unrestricted. While Winding up of a company if the company representative fails to comply with rules and laws, they can be held criminally or civilly liable.

Key Obligations of Winding up of a Company

• In the Board of Directors conference, fill an ordinary resolution.

• When the resolution is passed, there should be no marketing project in action.

• Undertaking by the company members that there is no outstanding debt on the company and the necessary form are filed.

Advantages of Winding up of a Company

Documents for Filing Appeal for Winding up of a Company

• Returns and ITR filed with ROC

• Form Comp 1: Winding up petition 

• Form Comp 2: Declaration of Truth 

• Form Comp 3: Certification of Service

• Announcement of Winding up petition

• Form Comp 4: A list of people auditing the hearing 

• Preparation of Preliminary Report by IP 

• By electronic means or by post, submission of proof of claim in Form A, B, C, D, E, F.

• PAN card of the corporation

• Announcement of cessation of the company's bank account with NIL contacts.  

• A director notarized Indemnity Bond.

• Latest statement of company accounts.

• Statement of reports regarding all liabilities and assets of the company, audited by CA.

• Application for extracting the company’s name 

• Indemnity Bond from all the directors 

Procedure for Voluntary Winding up of a Company

From 1st April 2020, the Companies winding-up rules 2020 came into effect. These rules will reduce the burden of NCLTs by enabling summary procedures for winding up and liquidation. 

Winding Private Limited Company as per Section 361 

1. The worth of assets in the book must not exceed INR 1 crore; and 

2. Anyone of the following circumstances based on the latest audited balance sheet:

• A company which has taken deposits, the total pending deposit must not exceed INR 25 lakh; or 

• Company has pending loans, the undivided pending loan including secured loans must not exceed INR 50 lakh; or

• Turnover of the firm is up to INR 50 crore; or

• Paid-up share capital of the company must not exceed INR 1 crore.

Approval of an Official Liquidator for Winding Private Limited Company 

The central government appoints the official liquidator of the company attempting Winding up of a company under the review procedure for winding up and liquidation.

Plan, Summary and Modes of Winding up or Liquidation as per 2020 Rules

Sale of Assets and Properties 

As per section 349, the funds collected by official liquidator from disposing of the assets or property of the company must be discharged into the public account of RBI.

Returns to Creditors

The official liquidator has to notify all the creditors of the company to determine their claims from the company. Within 30 days the liquidator has to provide a list of creditors to the central government.

Order of Winding up of a Company 

After reviewing the investigation report provided by the official liquidator, the central government will direct winding of private limited company in the same manner as it would have wound up by the Tribunal.

Additional Procedure & Process of Winding up a Company in India

• The Controls lay down the method for a meeting of contributors and creditors of the company, and characterize the situations in which creditors can and cannot vote.

• How many types of winding up in company law for you? The laws make it compulsory for all the money in the bank account of company liquidator which is not instantly needed for winding up, to be used up in government securities interest-bearing securities in any scheduled/registered bank. 

• The concerned laws lay down the techniques for preservation of registers and ‘books of accounts’ by the liquidation and winding up of a company.

• The rules also highlight the process for creditors to prove their debts and assert claims against the company and if the proof of creditor’s debt gets rejected by the liquidator of the company, there is also a process and provision for a creditor to appeal to the tribunal.

• The Companies winding up Rules, 2020 have rules for filing a petition for the Company, any Contributories or Contributory, the registrar, any individual authorized by the central government on that behalf and state or central government in the case of the company has gone against the interest of the integrity and sovereignty of India, friendly relations with foreign states, the security of the state, decency, morality, public order on matters including but not limited to the following:

o winding up by Tribunal;

o Appointment of Provisional Liquidators;

o Appointment of Company/official Liquidator;

o Winding-up Order;

o Application for stay of cases etc. on winding up order;

o Report by the official liquidator as per section 281;

o Settlement of lists of contributors 

o Advisory Committee;

o Meetings of Contributories and Creditors;

o Proxies regarding meetings of contributors and creditors;

o Books of accounts and Registration to be maintained by the official liquidator;

o Banking account of official liquidator;

o Investment of Surplus Funds;

o Audit and filing of company liquidators account;

o Collection and Distribution of Assets in winding up by tribunal;

o Examination of promoters and directors;

o Summon of individuals suspected of having assets or property of company;

o Application against Aberrant Directors, Officers, Promoters of the company;

o Abandonment of Claims or Compromise;

o Sale by official Liquidator;

o Returns and Dividends of Capital in winding up Tribunal;

o Termination of winding up;

o Payment of unclaimed distribution of assets or dividends and summary procedure for winding up and liquidation.

Note: 

The well-known feature of this announcement is the summary procedure for liquidation projected through Part V of the Companies winding-up Rules, 2020. 

Conclusion 

The Ministry of Corporate Affairs (MCA) has notified latest rules for winding private limited company without going through a tribunal, the provisions of the Companies Act now provide an alternative for the commonly used liquidation process as per India's Bankruptcy Code. A private limited company require to be windup or closed if the Director of the company is not willing to continue its services which is known as voluntary windup, and the other is compulsory winding up.