Winding up of a company is defined as the condition when the life of the company is brought to an end. The properties of the company are administered for the profit of its members and its creditors.
Steps of Winding Up
The following steps are followed in the case of a company winding up −
● An administrator, usually denoted as a liquidator, is appointed in the context of liquefaction or winding up of a company.
● The liquidator takes control over the company, assembles its assets, pays debts of the company and finally distributes any surplus amongst the members according to their rights and liabilities.
● The company has no assets or liabilities at the end of liquefaction or winding up.
● The dissolution of a company takes place when the assets and liabilities of a company are completely wound up.
● On the context of winding up, the name of the company is stuck off from the list of companies and its identity as a separate legal person is lost.
● If a company is unable to pay its debts or the debts taken by the company is worth more than the assets it owns and no agreements have been made with the creditors, then the company is considered insolvent and is subjected to compulsory liquidation or compulsory winding up.
● If an insolvent owes money to a natural person, he may ask the court of law to make a compulsory winding up order against the company.
● On the issuance of the order, the order is informed by the court to the official receiver, who eventually becomes the liquidator.
● The official receiver informs the creditors and conducts interviews with the directors of the company on the context of the winding up.
● If it is believed by the official receiver that the company has enough assets to pay its creditors, then the official receiver will seek for the appointment of an insolvency practitioner as the liquidator.
● The appointment of the liquidator is done either by calling a creditors’ meeting for the creditors to elect a liquidator by vote or by requesting the Secretary of the State to appoint one.
● If there are no assets left, then the official receiver will become the liquidator.
● A person must be owed a minimum amount of INR 750 without dispute before he can ask for a winding up.
● Other business corporations or individuals can request the order of winding up of a company.
● Insolvency Service, an agent of the government, is an investigating agency, which investigates the winding up of a company.
● The Insolvency Service investigates financial failure and misconduct of individuals and companies.
● The official receiver works for the Insolvency Service.
● The official receiver finds out when and why an individual became bankrupt and finds out the primary cause behind the liquidation of a company.
● The procedure of winding up differs according to the registration status of the company, i.e., if the company is registered or if it is an unregistered company.
● If the winding up of a company is processed in the court of law, the liquidator is termed as official liquidator.
● The official liquidator acts through a recognized reporting system under the supervision of the court.