Brief of Winding Private Limited Company
Under a provision in the Companies Act that provides an alternative to the commonly used liquidation procedure under India's bankruptcy code, the Ministry of Corporate Affairs notified rules 2020 for winding up small businesses without having to go to a tribunal. In India, the scope of company law is unrestricted and extensive; it takes into account the depth of a company's liquidation and the liquidation of its assets. If their representatives fail to comply with the laws and regulations, they can be held civilly or criminally liable while 'winding up a company'.
Benefits of winding up a company
Free from debts after liquidation: Once the liquidation process is over, all creditor obligations and pressures are excluded from the directors and all company officials.
Avoiding legal proceedings against the company: If the resolution is willingly passed by executives, they will ignore the court or tribunal's legal action and provide company directors with a forum to focus on other business opportunities.
Comparison of the low costs paid for liquidation: the costs or expenses involved in the liquidation process are comparatively low, since the disposal of assets would be subject to charges.
All lease agreements will be cancelled: if any company or individual has entered into a lease for a specified period, all the terms and conditions of the lease will be terminated during the liquidation process. If any penalty needs to be paid, it will be deducted from the selling of properties.
Benefits for creditors: After a protracted battle, creditors will benefit from the process of liquidation as they will be entitled for a default payment in relation to the credit proposal made by all creditors.
Mandatory Winding Up
Any company registered in India under the Companies Act that has committed an unlawful act, fraudulent act or even contributed to any action in certain fraudulent or unlawful activities would be forcibly wound up by the Tribunal.
Documents required while filing appeal
- A list of people auditing the hearing: Form Comp 4
- Preparation of Preliminary Report by IP
- Submission of Proof of Claim in Form B, in Form C, Form D, Form E, Form F, by post or by Electronic means.
- PAN Card of the corporation
- Declaration of the termination of the company’s bank account with NIL contracts.
- An indemnity bond, which should be notarized by the directors
- Latest statement of company accounts.
- Statement of reports related to all assets and liabilities of the company, audited by Chartered Accountant (CA)
- Application for extracting the name of the company.
- Indemnity Bond from all the Directors
- Ultimately ITR and Returns Filed with ROC
- Winding up petition: Form Comp 1
- Declaration of truth: Form Comp 2
- Certification of service: Form Comp 3
- Announcement of winding up petition
Procedure
- File a claim along with the Company's Statement of Affairs with the Tribunal;
- Depending on different conditions, the Tribunal may either approve or deny the petition;
- If the petition is filed by an individual other than the Company, the Tribunal may order the Company to file the opposition. Within 30 days, it will go along with the Declaration of Affairs;
For the winding-up process, the Tribunal appoints a liquidator;
- The liquidator is responsible for supporting and overseeing liquidation proceedings (taking over of assets, review, and examination of books of accounts, sale of assets, any other function, etc.). Individual will write a draft report for the winding-up com's approval.
- The liquidator shall, upon acceptance of the draft report, submit the final report to the Tribunal for the issuance of a winding-up order.
- Liquidator A copy of the order shall be transmitted by the liquidator to the ROC (Registrar of Companies) within 30 days. Any failure to do so relates to a penalty.
- It approves the winding up of the Firm and strikes its name from the Register of Companies if the ROC is fully satisfied;
- The ROC shall give to the Official Gazette of India a notice for publication.
A company's voluntary Winding Up
Either by passing a special resolution or a resolution in a general meeting, this kind of winding up of the organization is possible.
The same explanations may be as follows:
- The occurrence of some case allowing for the liquidation of the Company in the AOA (Articles of Association);
- Voluntarily, the organization decides to wind up.
Procedure Implementation
- Pass a resolution in general meeting for the events listed in AOA or a special resolution for voluntary decision and creditors' meeting;
- Provide a statement of the company's solvency for the payment of unpaid debts;
- Send the solvency declaration along with the auditor's report and the recorded valuer's report (in the case of the assessment of the company's assets) to ROC;
- Appoint a liquidator to settle proceedings. Winding up proceedings shall begin on the date on which the resolution is passed;
- The liquidator shall prepare a winding up report and convene a general meeting of the Company to draw up the final winding up accounts.
- Where it is decided by the majority members, a resolution shall be adopted;
- A copy of the statements to the ROC shall be submitted by the Liquidator and applied to the Tribunal along with the report;
- The Tribunal shall, after having considered the evidence, issue an order for the Company to be liquidated;
- A copy of the order shall be forwarded by the liquidator to the ROC (Registrar of Companies) within 30 days, the failure of which would result in a penalty.
- It approves the winding up of the Firm and strikes its name from the Register of Companies if the ROC is fully satisfied;
Defunct Winding Up Business
A Defunct Company is a company that has earned the status of a Dormant Company, as per the Companies Act, 2013. The government gives such a defunct or inactive business some relief because there are no financial transactions carried out by dormant companies.
The Companies Act, 2013 established the process for the liquidation of a discontinued company. A discontinued or dormant corporation will end up with a fast-track process that requires the STK-2 form to be submitted. Therefore, in order to wind up a defunct business, Form STK-2 is required and there is no extra procedure for that. Form STK-2 must be completed by the Registrar of Companies and must be properly signed by the company director approved by his board to do so.
A discontinued corporation refers to a company for the purposes of this scheme that has:
- No assets, no liability, and no liability.
- Which did not start any business operation after its formation or incorporation,
- Since the last year before making an application under FTE, it has not carried out any business activities (Fast Track Exit Scheme).
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Frequently Asked Questions
- For any unliquidated losses, the amount of which is not asacertained, a creditor does not vote;
- For any debt secured by an existing exchange bill or promissory note kept by him,
The company's properties are sold off by the liquidator to satisfy commitments and repay creditors by beginning the liquidation process. You will be at the top of the 'payment ladder' if you are a secured creditor and will get the first option when sharing the proceeds of the sale. In the other side, you would be at the bottom of the 'payment hierarchy' if you are an unsecured borrower (suppliers, workers, and banks). Therefore, your claim will be handled by the liquidator according to your role in the 'payment hierarchy' when you claim money from a company in liquidation.