Creditors’ Voluntary Winding Up vis a vis Member’s Voluntary Winding Up
January 31, 2014 by Shyam Ramakrishnan
Winding-up / Liquidation is a legal process where a liquidator is appointed to administer an insolvent company’s affairs in order to provide a fair distribution of the Company’s assets to its creditors and members. Liquidators recover assets of the company and distribute the proceeds to its creditors. Meeting of Creditors / Members under the Companies Act can be called for a number of different reasons and at a number of different times.
CREDITORS VOLUNTARY WINDING UP
Voluntary winding up arises when the time limit for which the company was formed expires or the objects for which it was set up have been achieved. In such cases an ordinary resolution in the general meeting is sufficient. For every other reason, a special resolution is required. (484)
Winding up is deemed to commence when the requisite resolution is passed and from that date onwards the company shall cease to carry on its business. (486, 487)
Where the resolution for winding up has been passed, but the BOD are not in a position to give a declaration on the liability of company, they may call a meeting of creditors, for the purpose of winding up. It is the duty of the BOD to present the full statement of the company’s affairs and list of creditors along with their dues. (500)
Resolution passed by creditors to be notified to the registrar within 10 days. (501)
A liquidator is appointed by the company in its general meeting and by the creditors in their meeting. They may agree on one person or if 2 names are proposed, the liquidator appointed by the creditors will act. (502)
Any director, member or creditor may approach the court, for direction that:
- Liquidator appointed in general meeting shall act, or
- He shall act jointly with liquidator appointed by creditor, or
- An official liquidator should be appointed, or
- Some other person must be appointed as liquidator. [502 (2)]
The remuneration of liquidator shall be fixed by the creditors, or by the court. (504)
On appointment of liquidator, all the power of Board of Directors shall cease. (505)
In case, the winding up procedure, takes more than one year, then liquidator will have to call a general meeting, and meeting of creditors, at the end of each year, and he shall present, a complete account of the procedure, and the status / position of liquidation (508).
The liquidator shall take the following steps when affairs of the company are fully wound up (509):
- Laying a complete picture of accounts, winding up process and method of property disposal before the general meeting and creditors meeting.
- Copy of account to be sent to the registrar and official liquidator within one week from the meeting.
- Company is deemed to be dissolved by the Official Liquidator from the date of report to the court.
Once the company is fully wound up, and assets of the company sold or distributed, the proceedings collected are utilised to pay off the liabilities. The proceedings so collected shall be utilised to pay off the creditors in equal proportion. Thereafter any money or property left may be distributed among members according to their rights and interests in the company.
MEMBERS VOLUNTARY WINDING UP
When the members themselves decide to wind up the company’s affairs due to their inability to carry on business or inability to meet their financial obligations or any other reason, such winding up is known as member’s voluntary winding up.
The principal difference between a member’s and a creditor’s winding up is that in a member’s winding up, the board of directors have to make a declaration stating that the company has no debts. The directors shall call a board meeting and make a declaration of winding up accompanied by an affidavit stating that:
- The company has no debts to pay, or
- The company will repay its debts, if any within 3 years from the commencement of the winding up, as specified in the declaration.
In a general meeting, one or more liquidators will be appointed to supervise the winding up process and the distribution of assets. Remuneration to be paid to the liquidator shall also be fixed in the same general meeting in which he was appointed. Notice of the liquidator’s appointment should be given to the registrar within 10 days of such appointment.
The power of board ceases to exist once the liquidator is appointed. This ensures that the liquidator is given a free hand in managing the final affairs of the company in a manner he deems fit. In case the winding up process takes more than a year, the liquidator is obligated to call a general meeting and present a complete account of the course of action taken and the current position of the organisation.
Post Winding Up Provisions
Once the winding up is complete, the following steps need to be taken:
- In a general meeting, called by advertisement, the liquidator shall lay down a complete picture of the winding up process by laying down the relevant accounts and the manner in which the properties have been disposed of.
- Within one week of the meeting, the liquidator shall send a copy of the accounts to the registrar and the official liquidator. Once of the official liquidator is satisfied that the affairs of the company are not being carried on prejudicially, the company shall be deemed to be dissolved from the date of report to the court.
MEMBERS WINDING UP VS CREDITORS WINDING UP
||A board of directors’ declaration is needed that the company has no debts or that it would pay the debts within 3 years, if any.
||The board is not in a position to unilaterally comment upon the liability of the company and therefore a creditors meeting is called
||A declaration of solvency in form 149, duly notarized, is required to be filed by the directors with a verified affidavit along with e-form 62. A statement of assets and liabilities at estimated realizable value should also be prepared along with a copy of the auditor’s report on the above two documents. Statement of affairs to be filed in form 57 verified by an affidavit in form 58 within 21 days of commencement of winding up.
||Form 65-A is filed which is a statutory declaration expressing the inability of the company to continue business, thereby summoning a creditors meeting.
||At the general meeting a special resolution needs to be passed for winding up and appointment of liquidator(s) and fixing of remuneration. The resolution notifying the liquidator’s appointment shall be published in the official gazette and in 2 newspapers (English + Regional Language).
||At the creditor’s meeting, the board shall lay out the complete picture of accounts along with a list of creditors and their claims. The liquidator appointed by the creditors will act. A committee of inspection might be formed to supervise the acts of the liquidator.
||Form 23 is to be filed within 30 days for notifying the resolution and form 62 shall be filed within 10 days of appointment. The liquidator shall notify his appointment to the ROC within 30 days in form 152 and e-form 62 and the same shall be published in the official gazette in form 151.
||The resolution passed in the meeting is to be filed with the ROC within 30 days.
||The final general meeting shall be called giving notice in form 155 in which a special resolution for disposal of books and dissolution shall be passed.
||The liquidator shall call a final general meeting and a creditor’s meeting by advertisement, specifying the time, place and object of the meeting.
||The official liquidator shall check and verify all the documents submitted to him by the company’s liquidator.
||The liquidator shall submit a copy of the accounts to the ROC and the official liquidator.