by Miss Makamam Mahmuda
Section 234-321 of the companies Act 1994 deals with winding up of the company. Winding up represents the last stage in company life. It’s a proceeding by which a company is dissolved. Winding up may be defined as the process by which the life of a company is ended in the course of such dissolution its assets are collected, its debts are paid off out of the assets of the company or from contribution by its member if necessary.
There are three modes of winding up. A company may be wound up either by the court or voluntarily or subject to the supervision of the court.
Section 235 of the Companies Act provides that in the event of a company being wound up every present and past member shall be liable to contribute to the assets of the company to an amount sufficient of its debts and liabilities and costs, charges, expenses of winding up.
A past member shall not be liable to contribute if he has ceased to be a member for more than one year before the commencement of the winding up or for any debts of the company contracted after he ceased to be a member or unless the existing members are unable to satisfy the contribution required to be made by them. In case of a company limited by shares, no contribution shall be required from any member exceeding the amount if any unpaid on the shares in respect to which he is liable as a present or past member.
In case of a company limited by guarantee, no contribution shall be required from any members exceeding the amount undertaken to the contributed by him to the assets of the company in the event of its being wound up. In the winding up of a company limited by guarantee which has a share capital, every member shall be liable to pay the amount undertaken to be contributed by him to the assets of the company and an amount to the extent of any sums unpaid on any shares held by him. According to Section 236, in the winding up of a limited company any director whether past or present whose liability is unlimited.
Under section 237, the term contributory means every person liable to contribute to the assets of a company in the event of being wound up. According to section 239 and 240, where a contributor dies or becomes insolvent, his legal representative and heirs shall be liable to contribute to the assets of company and in case of insolvency the assignee shall represent him and the estate of insolvent shall have to bear the cost of any payment by way of contribution to the assets of the company.
According to section 241 says about circumstances in which company may be wound up by court. A company may be wound up by the court if the company has by special resolution resolved that the company be wound up by the court:
- If default is made in filling the statutory report or in holding the statutory meeting.
- If the company is unable to pay its debts.
- If the court is of opinion that it is just and equitable to wind up the company.
Section 242 explains when a company will be deemed to be unable to pay its debts. These will be if a creditor to whom the company is indebted for a sum and the company neglects to pay the sum for three weeks or if execution or other process issued on a decree or order of any court in favor of a creditor of company is returned unsatisfied in whole or in part or if it is proved to satisfaction of court that the company is unable to pay its debts and court shall take into account the contingent and prospective liabilities of company.
Section 245 provides that an application for winding up can be made by a creditor, the company or contributory who has held the shares for at least six months in the eighteen months preceding the commencement of the winding up. The registrar may also apply with the consent of the government if it appears so necessary from a perusal of the financial condition of the company as disclosed in the balance sheet or from the report of the inspector appointed under section 195 or if it appears to the government to do so under section 204. The company must be given a chance of being heard before a petition is filed in this regard. A petition for the winding up on the ground that the company has not held a statutory meeting shall not be filed by anyone other than a shareholder and that too not before the expiration of fourteen days after the last day on which the meeting ought to have been held.
A winding up petition is not a legitimate means of seeking to enforce payment of a liability the nature of which is Bonafede disputed by the company as its defense is not clocked to evade the payment of the alleged loan. Where the petitioner failed to show that the assets of a company were not sufficient to meet his claim and that the company’s substratum was gone or that the company was commercially insolvent, the court refused to wind up the company. An application under 241 is a very serious matter and it amounts to killing of a company and the petition will be liable to be rejected.
Section 247 provides that a winding up of a company by the court shall be deemed to commence at the time of the presentation of the petition for the winding up.
Section 248 gives specific powers to the court to grant injunction upon the application of the company or of any creditor or contributory of the company, restraining further processing in any suit or proceedings against the company and also to pass similar orders upon such terms as the court thinks fit. The high court refused to apply this section to grant injunction. Section 249 gives power to the court to dismiss the petition, adjourn the hearing conditionally or unconditionally or to make any interim order which it deems just.
Section 252 requires the petitioner and the company to file with the registrar a copy of the winding up order within 30 days of the making of it; the registrar shall then register a summery thereof in his books relating to the company and shall notify in the official gazette that such an order has been made.
When a winding up order has been made or provisional liquidator has been appointed, no suit or other legal proceedings shall be proceeded with or commenced against the company except by leave of the court and subject to such terms as the court may impose.
Section 255-266 of this companies Act 1994 deal with appointment of the official liquidator, his resignation, removals, filling up vacancies and compensation, statement of affairs to be made to the liquidator of company’s property, the appointment of a committee of inspection of the account of the liquidator, power of the official liquidator, legal assistance to the official liquidator, exercise and control of liquidator’s powers.
The power under section 261 enables the liquidator to carry on the business of the company so far as may be necessary for the beneficial winding up of the company. Stoppage of work does not mean closure of business and the liquidator may carry on the business.
The liquidator has no power to distribute the assets among the contributories without sanction of the court.
Section 298-305 applies to Creditors’ Voluntary Winding up. The company shall call a meeting of creditors on the day or the day following the day on which the resolution for voluntarily winding up the company is to be passed and shall cause the notice of the said meeting of the creditors to be sent to the creditors along with the notice of the general meeting in which the winding up is proposed. The director of the company shall cause a full statement of the position of the company and the estimated amount of their claim to be laid before the meeting of creditors to be held and appoint one of their members to present at the said meeting.
The creditors may appoint their choice for appointment as liquidator and in that case he shall have preference over any nominee of the company for appointment as liquidator. The liquidator’s remuneration is to be fixed by the creditors or the committee of inspection. In every voluntary winding up it’s the duty of the liquidator to pay the debts of the company and adjust the right of the contributors among themselves.
Section 316-321 provide for winding up subject to supervision of court. When a company has by special or extraordinary resolved to wind up voluntarily the court may make an order that the voluntary winding up shall continue but subject to supervision of court and such terms as the court thinks just. Where an order is made for winding up subject to supervision, the liquidator may, subject to any restriction imposed by the court, exercise all the powers as if the company was being wound up altogether voluntarily.
However, if the creditors have a genuine feeling that there should be an investigation by liquidator who was not appointed by the directors, then the court will make an order making it subject to supervision of the court. The liquidator must not be independent, but also seem to be independent. The court is bound to have regard to the wishes of all the creditors and if the majority feels that the voluntary liquidation should continue then an order will not be made unless the Petitioner can show special circumstances. The motives of the creditors are relevant and in particular of those creditors who are also members and considerations of fairness and commercial morality should be taken into account.