Winding Up a Company
Winding up of a company means the end of the life of a company. It is the permanent closure of the business. A company is the creature of law. It therefore cannot die natural death. The termination of its existence is affected by the law. Thus winding up of a company is a legal procedure in which all the affairs of the company are wound up. Its assets and liabilities are determined. Assets are sold out and claims of the creditors met out before winding up the company. The balance if any is disturbed among the shareholders in proportion of their shares. This work is done by the liquidator.
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According to the Companies Ordinance 1984, there are three modes of winding up of a company which are given below:-
- Winding up by Court.
- Voluntary Winding Up.
- Winding up subject to supervision of the court.
Winding Up by Court
The main bases for closing company by the help of court are as under:-
By special resolution
A company has been passed exceptional resolution to be wound up by the court.
Default in delivering statutory report
A Public Limited Company is wound up if it has not held a statutory meeting. Yet, submitted statutory report to the registrar or has not held two consecutive annual general meetings.
Delay in commencement of business
A public company may be wound up, if it does not start the business during the year from the date of its amalgamation. Moreover, for a whole year suspects the business, the court may order the company to close.
Number of Members
A public company may be wound up if its members are reduced below seven. In case of private limited company less than two.
Failure to pay debt
If a public company is not in position to pay its debts, it may be wound up by the court.
Ceases to be a listed company
The court may wound up a company, if it ceases to be a listed company.
Voluntary Winding Up
It is further classified into two kinds.
- Members Voluntary
- Creditors Voluntary
In case of a member’s voluntary winding up. The directors declare in the meeting of shareholders that the company is fit for liquidation. Thus, the meeting then passes a resolution for voluntary winding up and appoints liquidators themselves. The voluntary winding up of the company by the members themselves may take place under the following circumstances:
Expiry of Period
If the period fixed for the duration of the company in the articles has expired. So, the company may be wound up voluntarily by passing a resolution in the general meeting.
By Special Resolution
If the company resolves by a special resolution that the company be wound up. Then the company will be put to an end.
Declaration of Solvency
If the majority of directors in a special board meeting resolve to wind up the company. Also, submit statutory declaration verified by the company’s auditors to the registrar of the joint stock companies. Then the company has no outstanding amount and disburse it’s over dues within a required period of time.
Appointment of Liquidators
The company in general meeting the shareholders shall appoint one or more liquidators for the purpose of winding up the affairs and disturbing the assets of the company. The shareholders fix the remuneration to be paid to the liquidators. On the appointment to liquidator, all powers of the directors and other officers of the company are ceased. So far as the company in general meeting of the liquidator sanctions the powers to remain with them.
Final Meeting and Dissolution
When the affairs of the company are finally wound up. The liquidator shall call a general meeting of the shareholders and place before them the full accounts of the company. Also, send its copy to the registrar within one week of the meeting. The company shall be dissolved on the expiration of three months on the receipts of the copy of account and other relevant documents from the liquidators.
A winding up in the case of which a declaration of solvency has not been delivered to the registrar is known as “Creditors voluntary winding up”. The company calls a meeting of its creditors and appoints a liquidator. When liquidation gets completed, the liquidator calls the final meeting of the company. A copy of his report is also sent to the registrar. The registrar on receiving the accounts and other documents. Then takes the action of dissolution of the company as laid down in the Companies Ordinance.
Winding up Subject to Supervision of the Court
According to Companies Ordinance 1984, a voluntary winding up of a company can also be carried under the strict supervision of the court. When a company has passed a resolution for voluntary winding up. Then, the court may issue its own motion or on the application of any person. Moreover, also makes an order that voluntary winding up shall continue, if the company is no more able to pay its debts.
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