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Voluntary liquidation of private company

CA Arvind Jain (Business) (27 Points)

20 June 2012

What will be the procedure if the private company is liquidated voluntary, and liquidator is required to do so?

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Dear Arvind,
A company may, voluntary wind up its affairs, if it is unable to carry on its business, or if it was formed only for a limited purpose, or if it is unable to meet its financial obligation, and etc. A company may voluntary wind up itself, under any of the two modes:
	Members voluntarily winding up.
	Creditors voluntarily winding up.
A company may voluntarily wind up itself, either by passing:
An ordinary resolution, where the purpose for which the company was formed has completed, or the time limit for which the company was formed, has expired.
Or
By way of special resolution
Both types of resolution shall e passed in the general meeting of the company. (484) Once the resolution of voluntarily winding up is passed, and then the company may be wound up, either through:
	Members voluntarily winding up, or
	Creditors voluntarily winding up
The only difference between the above two, is that in case of members voluntarily winding up, Board of Directors have to make a declaration to the effect, that company has no debts. (488)
i. MEMBERS VOLUNTARILY WINDING UP
Directors of the company shall call for a Board of Directors 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 it's debts; if any, within 3 years from the commencement of winding up, as specified in declaration (488)
WHO SHALL CARRY OUT THE WINDING UP PROCEDURE? & WHAT SHALL BE THE PROCEDURE?
	The Company shall appoint one or more liquidators, in a general meeting, who shall look after the affair of winding up procedure, and distribution of assets. [490 (1)]
	The liquidator so appointed, shall be paid remuneration for his services, which shall also be fixed in general meeting [490 (2)]
	The Company shall also give notice of appointment of liquidator to the registrar within ten days of appointment (493)
	Once the company has appointed liquidator, the powers of Board of Directors, Managing Director, and Manager, shall cease to exist. (491)
	The liquidator is generally given a free hand, to carry out the winding up procedure, in such a manner, as he thinks best in the interest of creditors, and company.
	In case, the winding up procedure, takes more than one year, then liquidator will have to call a general meeting, at the end of each year, and he shall present, a complete account of the procedure, and position of liquidator (496)

WHEN AFFAIRS OF THE COMPANY ARE FULLY WOUND UP
The liquidator shall take the following steps, when affairs of the company are fully wound up : (497)
	Call a general meeting of the members of the company, a lay before it, complete picture of accounts, winding up procedure and how the properties of company are disposed of.
	The meeting shall be called by advertisement, specifying the time, place and object of the meeting.
	The liquidator shall send to, the Registrar and official Liquidator copy of account, within one week of the meeting.
	If from the report, official liquidator comes to the conclusion, that affairs of the company are not being carried in manner prejudicial to the interest of it's members, or public, then the company shall be deemed to be dissolved from the date of report to the court.
	However, if official liquidator comes to a finding, that affair have been carried in a manner prejudicial to interest of member or public, then court may direct the liquidator to investigate furthers.

ii.	CREDITORS VOLUNTARILY WINDING UP
	Where the resolution for winding up has been passed, but the Board of Directors 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. (500)
	It is the duty of Board of Directors, to present a full statement of company’s affairs, and list of creditors alongwith their dues, before the meeting of creditors. [500 (3)]
	Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar within ten days of its passing. (501)

WHO SHALL CARRY OUT THE WINDING UP PROCEDURE ? & WHAT SHALL BE THE PROCEDURE?
	Company in the general meeting [in which resolution for winding up is passed], and the creditors in their meeting, appoint liquidator. They may either agree on one liquidator, or if two names are suggested, then liquidator appointed by creditor shall act. (502)
	Any director, member or creditor may approach the court, for direction that:
	1.Liquidator appointed in general meeting shall act, or
	2.He shall act jointly with liquidator appointed by creditor, or
	3.Appointing official liquidator, or
	4.Some other person to 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 he 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 (505).

WHEN AFFAIRS OF THE COMPANY ARE FULLY WOUND UP ( 509)
The liquidator shall take the following steps, when affair of the company are fully wound up:
	Call a general meeting, and meeting of creditors, and lay before it, complete picture of accounts, winding up procedure and how the properties of company are disposed of.
	The meeting shall be called by advertisement, specifying the time, place and object of the meeting.
	The liquidator shall send to the Registrar and official liquidator copy of account, within one week after the meeting.
	If from the report, official liquidator comes to the conclusion, that affairs of the company are not being carried in manner prejudicial to the interest of it’s members or public, then the company shall be deemed to be dissolved, from the date of report to the court.
	However, if official liquidator comes to a finding, that affairs have been carried in a manner prejudicial to intent of members or public, and then court may direct the liquidator to investigate further.
The Central Govt. shall keep a cognizance over the functioning of official liquidator, and may require him to answer any inquiry. (463)

DISTRIBUTION OF PROPERTY OF COMPANY ON VOLUNTARILY WINDING UP [BOTH MEMBERS AND CREDITORS VOLUNTARILY WINDING UP]
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.