Step by Step guide for Voluntary Winding Up of The Company

Winding up is the last stage of the company’s existence. Shutting down a company is more difficult than building up a company. When a business is not functioning properly, it is better to shut it down. There are three-four ways of shutting down the business. Some of the ways are selling a company, mandatory winding up, voluntary winding up of the company and closing a defunct company. 

Winding up of the company

Winding up of the company puts an end to the corporate existence of the company, and it is dissolved thereafter. Under the section 270 Companies Act, 2013, a company would wound up either by the Tribunal or voluntary wind up. There can be many reasons behind the wind-up, including mutual agreements among stakeholders, loss, and bankruptcy, etc.

The process through which the company has to necessarily sell all its business for paying the creditors and distributing the remaining assets to its members and then finally dissolving business is known as winding up of company. In India, there are two types of winding up, winding up by Tribunal and Voluntary winding up.

Voluntary Winding up of company

Shareholders of the company trigger voluntary winding up. Therefore, it is not necessary for the company to be insolvent. In other words, if the shareholders think that, the objectives of the company have been accomplished and it is time to shut down, they can opt for voluntary winding up. The company can go for voluntary winding up if it becomes insolvent. In this case, the shareholders can go for voluntary wind up to avoid the charges of bankruptcy or personal liability of the company’s debts.

How can the company voluntarily wind up?

By Ordinary Resolution:

A company can voluntarily wind up on the expiry of the period or duration which is fixed by articles of company or on happening of an event on which the article provides that the company should be dissolved by ordinary resolution.

By Special Resolution:

A company can opt for voluntary winding up by special resolution. This can be done by getting a 75% majority from the shareholders and board of directors through a special resolution. After the resolution is passed, it has to be published in the official gazette and in the newspaper within 14 days.

Procedure for Voluntary Winding Up of Company

Step by step procedure for Voluntary Winding up of a company is as follows-

Step 1

In the first place, the members have to hold a board meeting with at least two directors for passing a resolution. The resolution should contain a declaration stating either that the company is not having any debts or it can pay off the debts through its assets.

They have to discuss about voluntary winding up of the company, appointment of a liquidator. Moreover, they also have to approve the declaration of solvency if any. This declaration has to verified by the company directors on a stamp paper worth Rs. 100/-. It should state that after full inquiry, they are of the opinion that the company has no debt or it can pay off its debts through its assets sold in voluntary liquidation. In the end, it should also mention that the company is not being liquidated to defraud any person.

The affidavit has to be accompanied with a record of the last 2 years of audited financial statement and business operations, registered valuer report, latest financial position.

Step 2

Next, a notice for a general meeting for discussion of resolution as well as explanatory statements is also issued. All the details of the meeting and notice of the general meeting are sent to the Stakeholders.

Step 3

The members have to pass an ordinary resolution in the General Meeting for voluntary winding up and appointment of liquidator. This resolution has to be approved by at least 3/4^th majority. 

Step 4

In case the company has any debts, hold a meeting with the creditors after the general meeting for approval of the resolution. If the majority of the creditors are of the opinion that winding up is the only option available, then the company would wind up. (Approval of the resolution is to be done within 7 days by the creditors owing 2/3rd of the value of the debt of the company.) But if the company cannot meet all its liabilities, then the company must wound up by Tribunal.

Step 5

Additionally, within 14 days of the resolution, a notice has to be given in the official gazette and two newspapers.

Step 6

Within 30 days of the resolution, the statement of account is prepared stating about the liabilities and assets of the company. An affidavit has to be executed by all the directors.

Step 7

Call for the General Board Meeting, at which a special resolution will be passed for the disposal of accounts.

Lastly, within two weeks, file the accounts and special resolution with the Registrar. If the Registrar is satisfied, it will pass an order stating that the company is wound up within 60 days.

Consequence of Voluntary Winding-up of company

When the company goes for voluntary winding up, then the company shall from the commencement of wind up cease to carry on their business. The corporate state of the company and it’s power shall continue until the company is dissolved.

Important Notes for Company

1. The company has to intimate the ROC through Form MGT-14 for board resolution and special resolution and GNL-2 for declaration of solvency and appointment of liquidator within 10 days of passing resolution.
2. They have to intimate the officials about the voluntary winding up within 7 days of approval of liquidation.
3. The company has to intimate the Income Tax department for an NOC regarding voluntary winding up within one month of passing the resolution.
4. The liquidator appointed has to file a copy of such order with the ROC.
5. On receipt of such order within 14 days, the Registrar will publish a notice in the official gazette and declare the company dissolved.
6. The entire procedure will complete in a maximum of 12 months from the commencement of liquidation.

Advantages of Voluntary Winding-up of company

• There is a limit on the director’s liability under voluntary winding up.
• The whole process of voluntary winding up is managed by licensed professionals, which ensures speedy closure.
• The power of the board of director will not cease and not hamper the independence of liquidator.
• It is a private process with minimal interference from the government.

Timeline of Voluntary Winding-up

The voluntary winding-up process usually takes a maximum of 6 to 12 months. After this, the liquidators have to sell their assets, investigate and file paperwork. It approximately takes one year for the company to voluntary wind up.

Conclusion

Having a business involves a lot of challenges and complication. When the business does not function it is better to opt for voluntary winding up. Voluntary winding up of a company is not just about laying off employees, and it also involves several other procedures. Closing a company is a tedious task. Therefore, it is always advisable to go for voluntary wind up.

For more information, contact our team of expert lawyers here at LawyerINC.