The winding up of a business entails selling all of the company’s assets, paying off creditors, and distributing the remaining assets to shareholders. Even with digitization, starting a business or company is always challenging due to the procedural aspects. But because it has a different legal identity than its promoters, it is even harder to stay the same.
The process by which a company’s existence is terminated is known as winding up. The company’s assets are administered for the benefit of its creditors and members during a winding up. The provisions and procedures associated with a company’s compulsory winding up are made clear to the reader in this article.
Compulsory Company Winding Up
When a Court or Tribunal orders the compulsory winding up of a company that was established and registered under the ordinance, this is called compulsory company winding up.
Conditions under which a Company May Be Compulsorily Winded Up by the Tribunal According to the Companies Act of 2013, the following conditions must exist for a company to be forced to be wound up:
- When the company has passed the special resolution directing the Court or Tribunal to liquidate the business.
- has done something that isn’t good for the country’s sovereignty and integrity.
- For five years in a row, the business has failed to submit its annual returns or financial statements.
- The Tribunal or Court is of the opinion that the company is operating its affairs dishonestly or that the company’s formation was carried out dishonestly or illegally.
- The Tribunal or Court believes that liquidating the business is just and fair.
List of Who May Make a Petition to the Tribunal for the Closing of a Business
An application for the closing of a business must be made in the form of a petition, and only the following individuals may make such a petition:
The company, its creditors, any contributors, the registrar, anyone authorized by the Central Government, anyone authorized by the State Government, and other important points The registrar must first obtain approval from the Central Government before submitting the petition for the company’s winding up. In addition, the Central Government must provide the company with a reasonable opportunity before approving the registrar.
A copy of the petition must also be sent to the registrar, who must express his opinions to the Tribunal within 60 days of receiving it.
The Companies Act of 2013’s “Actions that the Tribunal May Take Upon Receipt of the Petition” provisions also specify the actions that the Tribunal may take upon receiving the petition for the company’s winding up. The tribunal would issue any of the following orders upon receiving the petition:
- Reject the petition (either with or without a fee).
- Whenever it sees fit, it may issue an interim order.
- Until a winding-up order is passed, a temporary liquidator for the company should be appointed.
- Pass an order for the company to be wound up (at no cost or cost at all); or it may pass any other order it deems appropriate.
- Within ninety days of receiving the petition, the Tribunal is required to issue an order.
- Before appointing a provisional liquidator, the Tribunal is required to notify the company and provide a reasonable opportunity for hearing.
- The Tribunal will require the company to submit its objection to the petition and the statement of affairs within 30 days if the petition for the company’s winding up was filed by someone other than the company.
- The company’s director and other officers are required to submit audited and complete books of accounts to the liquidator up to the date of the order.
Learn More: What Is Compulsory Winding Up of a Company?
Procedure for Compulsory Company Winding-Up
The first step is to submit a petition for a company’s winding-up, which, as previously stated, can only be submitted by a limited number of individuals. The Statement of the Company’s Affairs must accompany the petition as filed. The following methods should be used to promote the petition:
- Form 6 must be used to run the advertisement.
- For at least 14 days, the advertisement should appear in a daily journal.
- The advertisement should be written in English as well as the local dialect of the area.
The company must submit audited books of accounts in their entirety. The Tribunal will issue an order for the company’s dissolution or winding up if it determines that the accounts are in order and that the company has followed all of the required regulations.
Following the tribunal’s order, the registrar will publish a notice in the official gazette announcing the company’s dissolution.