Winding up of a company is defined as the condition when the life of the company is brought to an end. The properties of the company are administered for the profit of its members and its creditors. The liquidator takes control over the company, assembles its assets, pays debts of the company and finally distributes any surplus amongst the members according to their rights and liabilities. The company has no assets or liabilities at the end of liquefaction or winding up.
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Winding up of a company is defined as the condition when the life of the company is brought to an end. The properties of the company are administered for the profit of its members and its creditors. The liquidator takes control over the company, assembles its assets, pays debts of the company and finally distributes any surplus amongst the members according to their rights and liabilities.
The company has no assets or liabilities at the end of liquefaction or winding up. The dissolution of a company takes place when the assets and liabilities of a company are completely wound up. On the context of winding up, the name of the company is stuck off from the list of companies and its identity as a separate legal person is lost.
If a company is unable to pay its debts or the debts taken by the company is worth more than the assets it owns and no agreements have been made with the creditors, then the company is considered insolvent and is subjected to compulsory liquidation or compulsory winding up. If an insolvent owes money to a natural person, he may ask the court of law to make a compulsory winding up order against the company. On the issuance of the order, the order is informed by the court to the official receiver, who eventually becomes the liquidator.
The official receiver informs the creditors and conducts interviews with the directors of the company on the context of the winding up. If it is believed by the official receiver that the company has enough assets to pay its creditors, then the official receiver will seek for the appointment of an insolvency practitioner as the liquidator.
If there are no assets left, then the official receiver will become the liquidator. A person must be owed a minimum amount of INR without dispute before he can ask for a winding up. Other business corporations or individuals can request the order of winding up of a company. Insolvency Service, an agent of the government, is an investigating agency, which investigates the winding up of a company.
The Insolvency Service investigates financial failure and misconduct of individuals and companies. The official receiver works for the Insolvency Service. The official receiver finds out when and why an individual became bankrupt and finds out the primary cause behind the liquidation of a company. The procedure of winding up differs according to the registration status of the company, i. If the winding up of a company is processed in the court of law, the liquidator is termed as official liquidator.
The official liquidator acts through a recognized reporting system under the supervision of the court. Powers of a Liquidator An administrator, usually denoted as a liquidator, is appointed in the context of liquefaction or winding up of a company.
If the company goes into liquidation, the court of law appoints a liquidator for the liquidation. The primary objective of the liquidator is to raise as much funds as needed to pay the creditors. Any surplus money left will be distributed amongst the shareholders of the company. After the name is struck off, the company ceases to exist anymore. The company is no more able to do business.
Any outstanding legal disputes are settled. All the assets of the company are sold. Money owed to the company, if any, is collected. Funds raised are distributed to the creditors.
Surplus funds left after all the transactions are distributed amongst shareholders. The company continues to exist as a corporate entity till its dissolution. All the ongoing business of the company is administered by the liquidator during the phase of liquidation.
Every transaction of share during the liquefaction done without the approval of the liquidator is termed void. As Regards the Creditors The creditors cannot file a case against the company except with the consent of the court. If the creditors already have decrees, they cannot proceed with the execution. They must explain their claims and justify their claims to the liquidator.
As Regards the Management With the appointment of the liquidator, all the powers of the directors, chief executives and other officers tend to cease. Only the powers to give notice of resolution and the power of appointment of the liquidator upon winding up of the company are given to the members. Non-commencement of the company in business within one year of incorporation.
Number of members has reduced below 7 for a public company or 2 for a private company respectively. The debts of the company are unpayable by the company. The tribunal is just equitable to wound up the company. The company is unable to file its balance sheet or annual return for five financial years consecutively. The company has acted against the sovereignty and integrity of the country.
Winding Up of the Company by Tribunal When a resolution for the winding up of a company is passed inside the company, the court may make an order for the voluntary winding up to continue.
However, the court remains in supervision of the winding up. The freedom and liberty of the creditors, contributors or others to apply to the court at such times is limited by the court. A petition for the winding up must be filed at the court for the supervision of the court over the winding up. The winding up of a company by the order of the court is also regarded as a compulsory wind up. Section of the ordinances justifies the following circumstances where the court may wind up the company based upon a petition submitted to a court.
If the company decides by a special resolution that the company should be wound up by the court. If the company does not start its business for one year of incorporation or its business in suspended for one year. If the number of members is reduced below 2, 3 and 7 for private, public and listed company respectively. If the company is found no more able to pay its debts. If the company, being a listed company, does not stand out to act like one.
A list of the total assets must be prepared in order to confirm that the company is no more able to pay its debts. A list of the creditors must be prepared. In the context of any defaults in payments, the creditors of a company are required to make a decision for filing a petition in the court of law.
Advocates must be engaged to prepare and file the petition. In case of an event according to the articles of association of the company, under which the company needs to be dissolved.
If a special resolution is passed by the members of the company for the voluntary liquidation of the company. A minimum notice of 21 clear days must be given in order to convene a general meeting. However, with the consent of the members, a general meeting can be convened with a shorter notice. A voluntary winding up is commenced just after the above mentioned resolution has been passed. The notice for the beginning of the winding up of a company must be made in an official gazette, i.
Again, the notice of the winding up of the company must be published in a newspaper in the place where the registered office of the company is situated. The company becomes unable to conduct any commercial business activities after the commencement of the winding up. The corporate state and its corporate power continue to remain in existence until the company is finally dissolved. The Companies Act however provides some specific criteria for these two types of winding up.
It is necessary for such a declaration to be made at least 5 weeks before the resolution to become effective. This fixed remuneration cannot be changed in any circumstances. The liquidator does not take charge of his office unless the remuneration is fixed. However, the power to give notices and the power to make appointments to the registrar is not ceased.
However, the powers of the directors may continue to exist upon the sanction of their powers by the shareholders or the liquidator. He buys the interest of any dissenting member at a price to be determined by an agreement or arbitrarily. Duty of the Liquidator to Inform the Income Tax Officer Upon the appointment of a liquidator, the income tax office must be informed of the appointment of the liquidator. This must be done within 30 days of the appointment of the liquidator.
The tax assessment of the company is to be carried out. Duty of the Liquidator to Call General Meeting at the End of Each Year In case the process of winding up takes more than one year, the liquidator must call for general meetings at the end of each year.
The meetings should be held within three months from the end of each year or as specified by the central government of India. The liquidator must present a brief account of his actions and the matters he is dealing with and the progress of the winding up at the general meeting before all the other members of the company. Conduct a general meeting of the company for laying the report before the company and provide justification of the steps he has taken for the successful winding up of the company.
Dissolution of the Company Bringing an end to the life of a company is termed as dissolution. No property can be held by a dissolved company. The company cannot be sued by the court after liquidation.
If any property of the company still remains after the dissolution of the company, the property will be taken over by the government immediately. However, if there are different persons nominated at the general meetings of the company and the creditors meeting of the company, then the person nominated by the creditors is appointed as the liquidator of the company. Appointment of the Inspection Committee If the creditors wish, they may appoint an inspection committee for watching over the entire process of winding up of the company.
Remuneration of the Liquidator The creditors fix the remuneration of the liquidator. If the creditors fail to fix the remuneration of the liquidator, the remuneration shall be fixed by the tribunal.
No liquidator shall join unless a respectable remuneration is fixed. Once fixed, the remuneration cannot be changed. Power of the Liquidator The liquidator enjoys all the powers as vested on a director. The meetings should be held within three months from the end of each year or as specified by the Central Government of India.
Conduct a general meeting of the company for laying the report before the company and give certain explanation about the justification of the steps he has taken for the successful winding up of the company.
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Business Law - Winding Up of a Company
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Business Law for Managers