Lecture on the Definition of Winding-up of a Company,

Various modes of Winding-up of a Company.

Course Code- LAW-3501
Course Title- Legal Environment of Business
LECTURE SHEET NO- 11
Muhammad Farhad Hossain (MFH)
Assistant Professor
Department of Law
International Islamic University Chittagong
Email: farhadlex@gmail.com
Phone- +8801818369741

Meaning of winding up:

A company is a creature of law it continues its business through the process of law and comes to an
end maintaining some process of law. The company being a legal existence can't die a natural death
and winding up is the process to put an end of the life of a company.
Generally, the winding up or liquidation of a company means the cessation of the company's legal
existence and taking its management in the hands of the directors. When a company is wound up
its business stops, the assets are collected and distributed among the creditors and members in the
manner prescribed in this Act and in the articles of the company. About winding up prof. Gower
says, "winding up of a company is the process whereby its life is ended and its property is
administered for the benefits of its creditors and members. An administrator, called a liquidator, is
appointed and he takes control of the company, collects its assets, pays its debts and finally
distributes any surplus among the members in accordance with their rights.

Winding up and dissolution:

Sometimes confusion may be created that winding up and dissolution are same but it is not true.
Winding up precedes dissolution". A company is said to be dissolved when its legal entity is totally
ceased. But on the winding up the legal entity of a company still exists. Winding up is merely a
formal step to dissolve the company and between winding up and dissolution the corporate entity
of a company exists and so, it is liable to be sued in a court of law.

Winding up and insolvency

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A notice among the general people is found that when a company is insolvent, it is wound up. And
this point needs to be made clear and we must keep in mind that there is difference between
insolvency and winding up. A company may be wound i on different grounds like:
(a) default in holding statutory meeting;
(b) failure to commence business with the time prescribed by law, and even when a company is
fully solvent.
Thing should be noted that winding up is merely to dissolve the company whereby the management
of it is just taken out of the hands of its directors. In this sense, when a company is ordered to be
wound up its assets belong to itself and its administration is carried on through the medium of
liquidator. Surprisingly, if a company is wound up due to insolvency, all the provisions of law relating
to insolvency do not apply.

Modes of winding up:

(S.234] The Companies Act, 1994 provides three ways of winding up of a company which are:
i. Compulsory winding up under order of the Court.
ii. Voluntary winding up.
iii. Winding up subject to the supervision of the court.
A voluntary winding up may be either a members voluntary winding up or creditors voluntary
winding up.

1. Winding up by the court: [S. 241]

When a company is wound up:
(a) by the special resolution of the shareholders; or
(b) fails to hold the statutory meeting or file the statutory report; or
(c) fails to commence business within due time prescribed by law; or
(d) has less number of members than its requirement as provided by law; or
(e) fails to pay its debts; or
(f) on just and equitable ground then it is called compulsory winding up by court.
In the case of winding up by the order of the court, all activities are conducted under the supervision
of the court. For such supervision, government official liquidator is appointed and the directors lose
their powers.

Petition for winding up:

Sec. 245 of our Companies Act provides for persons who are eligible to file petition for compulsory
winding up. This section says that an application to the court for the winding up of a company shall
be made by presenting a petition. This section further says that the petition may be made by the
company or by any creditor or creditors, including any contingent or prospective creditors,
contributor or contributors, or by all or any of those parties, together or separately or by the

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Registrar. The following persons, as per S. 245, can make a petition to the court for winding up a
company:

(i) Petition by company: The company can file a petition for winding up but special
resolution to this effect must be passed. Here another thing to be kept in mind that the
petition must be presented by the company itself. In Re Patiala Banaspati Co", a petition
for the winding up was presented by the managing director of the company but the court
rejected the petition. The court, in this case observed that the petition must be made by the
company sanctioning by a resolution passed at the general meeting. Thus, a person who was
not authorised by the board of directors can't file a petition for the winding up of the
company.

(ii) Creditor's petition: A compulsory winding up is usually initiated by a creditor's petition.

The term creditor includes:

(a) contingent; or
(b) prospective creditors.

If several creditors wish to present a petition for winding up, then can present it jointly and
in this case payment of a single court fee is valid.
To file a petition a secured creditor is as mush entitled as of right to file a petition as an
unsecured creditor. But in case of petition made by any contingent or prospective creditor
leave of the court is to be obtained, at the same time the court can't hear petition until he
has given security for casts and established a prima facie case. [S.245 (d)]
A creditor, whose debt is bonafide disputed with the company, is not entitled to present a
winding up petition. So, the creditors claim must be actual to file a petition for winding up.

(iii) Contributory's petition: The term 'contributory' means every person liable to
contribute to the assets of the company in the event of its being wound up. [S. 237] Again,
a holder of a fully paid up shares in a limited company is a contributory and entitled to
present a winding up petition.
Conditions for presenting petition by a contributory: - Under section 245 if a contributory wish to
file a petition for winding up, he must satisfy any of the following conditions:
a) the number of members is reduced below seven in the case of a public company below
two in the case of a private company;
b) the shares were originally allotted to him; or
c) they have been held by him and registered in his name for at least six months during the
eighteen months before the commencement of the winding up; or
d)they have been devolved on him through the death of a former holder. [S. 245 (a)

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 The object of the provisions mentioned in clauses (b), (c), and (d) is to prevent a person
acquiring shares to qualify himself to present a petition to "wreck the company 490

Other conditions: -
Apart from the statutory conditions discussed earlier, the court is to be satisfied on the
grounds that the contributory has prima facie case or the company has assets enough to
distribute among the shareholders. The reason behind it is that unless there are such assets,
the contributory has no interest in a winding up. This rule however, has no application where
the contributory presents the petition on just and equitable ground. Again, a shareholder
whose calls are in arrear can file petition but he must first pay the amount of the call into
the court. But the right of a contributory can't be curtailed or excluded by the articles. In Re
Peveril Gold mines Ltd, the articles of the company provided that unless the consent of two
directors was obtained or unless a resolution to wind up was passed at a general meeting or
unless he petitioner held one-fifth of the share capital, no petition for winding up of the
company could be presented. In response the court held that the conditions or restrictions
were invalid and a petition could be presented.

(iv) Register's petition:- A petition for winding up of a company may also be presented by the
Registrar if any of the following conditions is fulfilled:
a) if default is made in filing the statutory report or in holding the statutory meeting; or
b) if the company does not commence its business within a year from its incorporation, or
suspends its business for a whole year; or
c) if number of members is reduced than the statutory requirement; or
d) if the company is unable to pay its debt. But the Registrar must be satisfied in this regard
from the financial condition of the company from its balance sheet or from the report so
published; or
e) if the court is of the opinion that it is just and equitable that the company should be
wound up.

(C) Grounds of compulsory winding up by court: [S.241]

S. 241 of our companies Act lays down the grounds of compulsory winding up of a company. This
section provides that a company may be wound up by the court:
I. if by special resolution it resolves that it be wound up; or
II. if it defaults in filing statutory report or in holding the statutory meeting; or
III. if the company fails to commence its business within a year from its incorporation, or
suspends its business for a whole year; or
IV. if the number of member is reduced than the statutory requirement; or
V. if the company is unable to pay its debts; or
VI. if the court is on opinion that it should be wound up on just and equitable grounds.
[Rahimuddin Ahmed-vs-Bengal water ways Ltd (1979] 31 DLR 28

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(i) Special resolution:- If the company itself passes an special resolution to wind up the company,
and applies to the court to this effect, the court may grant its application and pass an order to w
up the company. But a company is not bound to pass an order of winding up merely because the
shareholders have applied for this purpose.
Actually, it is the discretionary power of the court and if the e or finds that such winding up would
be against the interest of public of company as a whole, the court shall not order for winding up.

(ii) Default in holding statutory meeting: - If a company makes any default in filing statutory report
to the Registrar or default in holding statutory meeting, the court may order to wind up this
company.

Here, petition may be presented by the shareholders or Registrar on this ground. However, on
getting petition instead of making a winding up order, the court may direct that the statutory report
shall be delivered or statutory meeting shall be held. Another thing to be kept in mind that if the
petition is brought by any other person e,g, a creditor, it must be filed before the expiration of
fourteen days after the last day on which the statutory meeting ought to have been held. [S. 245
(c)]. Since, a private company is not required to hold such a meeting; this provision shall have no
application in case of a private company.

(iii) Company not carrying on business: - If the company does not commence its business within a
year from its incorporation or has suspended business for a whole year, the court may order to wind
up the company"". But this is not an absolute rule, if the court is satisfied that there was any
reasonable ground for not carrying on company's business with the stipulated time, the court may
refuse to make such winding up order. Generally, the court will order for winding up where the
intention of the company not to carry on business is proved or where it is obvious that the company
will never have sufficient resources to commence business". In the case of Murlidhar-vs-Bengal
Steamship Co, a company for the purpose of carrying on business, had a steamer and two flats
ready. But the flats were subsequently acquired by the government during the First World War for
which it was not possible for the company to commence its business. Besides, the company failed
to replace them immediately because of economic crisis. After one year, a petition S6 96 497 for
wind up the company was filed and the court found reasonable ground not to carry on the business
and that's why the petition was refused.
(iv) Reduction in membership: - If the number of members reduced, in case of public company,
below seven, and in case of private company, below two, the company may be wound up by an
order of the court. [S. 241(d)]
(v) Inability to pay debts: - If a company is unable to pay debts, it may be ordered to be wound up
that the company is commercially insolvent. In Re European Life Assurance Society it was held that
a company is said to be commercially insolvent when "its assets are such and existing liabilities are
such as to make it reasonably certain----as to make the court feel satisfied------that the existing and

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probable assets would be insufficient to meet the existing liabilities." However, sec. 242 (1) our act
provides that a company shall be deemed to be unable to pay its debs:
a) it the company is indebted for a sum exceeding five thousand taka and the creditor has
served a demand notice to the company to pay the sum but the company has, for three
weeks thereafter, neglected to pay the sum or to secure or compound for it to the
reasonable satisfaction of the creditor"; or
b) if any decree or order of any court in favour of a creditor is not executed either wholly or
in part""; or
c) if it is proved to the satisfaction of the court that the company is unable to pay its debts.
(v) Just and equitable grounds:- The last clause of s. 241 provides that if the court is of opinion that
it is just and equitable that the company should be wound up then the company may be wound up
by the order of the court. But this should be the last resort to seek remedy. Actually, this clause
gives the court a wide discretionary power and in exercising the power the court may refuse to
make an order of winding up if any other efficacious remedy is available"
So, what is a just and equitable ground is always a question of fact which varies from facts to facts,
but the general practice suggests that under the following circumstances a court finds it just &
equitable to wind up a company:

(a) Deadlock:- The success of business of a company depends largely on the proper
management of the company. But if the situation is such that there is deadlock in
management of the company, the court may pass an order for winding up the company. In
Re Yenidje Tobacco Co. Ltd, W. and R. were two shareholders and only directors of a private
limited company. Once they involved in a conflict and their hostility was such that they world
speak only through the secretary and not directly which resulted a deadlock in company's
management. On a petition the court held that there was good reason to pass an order for
winding up the company.
But it must be kept in mind that if the dispute between or among the directors can be
resolved through arbitration, the court can't pass an winding up order under this clause.
Again, if the difference in relation to company management is found between majority and
minority shareholders, this clause should not be invoked as a resort for the winding up of
the company.

(b) Continuous loss of the company:- A company is liable to be wound up on just and
equitable' ground if the court finds that the company continues its business only with losses.
The object of forming a company is to make profit but if it losses continuously and there is
no hope for future profit then it is just and equitable to wind this company up might fall in
loss then it is not a good ground for the present purpose. In Re Shah Steamship Navigation
Co", it was held that "the court will not be justified in making a winding up order merely on
the ground that the company has made loss; and is likely to make further loss."

(c) Fraudulent purpose:- If a company is formed and carried on its business for fraudulent

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 purpose, e,g, to defraud the creditor, then it is just and equitable to wind up the company.
In the case of Universal Mutual Aid and Poor Houses Association-vs-Thopa Naidu , the Main
object of the company was to conduct of a lottery. But the company also sets some other
objects one of which is welfare in nature. The court, in this case, held that since the main
object was illegal so, the company was liable to be wound up.
But if fraud or misrepresentation is committed in the prospectus or against the third party,
it will not render the company to be wound up.
(d) Loss of substratum: - Where the main purpose of the company for which the company
was established is frustrated or where the main object has lost its substratum is permitted
to wind up a company by the court on just and equitable ground, But the mere fact that the
company has suffered trading losses is not a conclusive ground to wind up the company.
(e) Oppression of minority:- Generally, in a public company the majority shareholders hold
the controlling power of the company but if they formulate any policy to oppress the
minority or which acts against the interest of the company then it is just and equitable to
wind up the company. In the case of R. Sabapathi Rao-- Sabapathi press Ltd, the directors
had influential power on the management of the company and the managing director had
exercised the power to outvote the minority of the shareholders a distribute the profits only
between the members of the family, and there were several complaints that the
shareholders were not given a copy of the balance sheet, nor the auditor's report was read
over at the general meeting and the dividends were not regularly and rateably paid, the
court found that there was sufficient ground for winding up the company.
(f) Bubble company: - It is just and equitable to wind up a company if it is a bubble i.e., if it
never had any business or assets.
(g) Mismanagement in domestic company: - It is also just and equitable to wind up a
company where it is a domestic and family company and there has been mismanagement
by the directors who hold a majority of the voting shares.
Method of compulsory winding up: In the case of compulsory winding up the following methods
are required to be followed:
(i) Hearing of application: - To pass an order of winding up the court shall fix a date for
hearing, hear the parties and take decision in this regard. On hearing the petition, the court
may dismiss it or make any order as it thinks fit, but the court shall not refuse to make a
winding up order on the ground only that the assets of the company have been mortgaged
or that the company has no assets. [S. 249(1)]
(ii) Commencement of winding up by court: - In case of compulsory winding up or
winding up by the court, the winding up Shall be deemed to commence at the time
of the presentation of the petition for the winding up. [S.247]
But before a formal declaration is made by the court if the Company passes a
resolution for voluntary winding up, the winding up shall be deemed to have
commenced at the time of passing the resolution. U/S 287, a voluntary winding up

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 shall be deemed to commence at the time when the resolution for voluntary winding
up is passed.
(iii) Appointment of liquidator and order of winding up: - When Ae winding up
order is made, the official receiver shall become the official liquidator of the
company and shall continue to act as such until the court passes an order to
terminate his act. [S. 251 (2)]
(iv) Preparation of the list of the contributories: - After making the winding up order
the court shall settle a list of contributories. [S. 267]
The court may also make calls on contributories to the extent of their liability to
satisfy the debts and liabilities of the company. [S. 270]
(v) Collection of documents and assets: - After making a winding up order the court
may require any contributory and any trustee, receiver, banker, agent or officer of
the company to pay, deliver or surrender, to the official liquidator any money,
property or documents which the company is prima facie entitled. [S. 268]
The court may order any person from whom money is due to the company to pay
the same into the account of the official liquidator in any scheduled bank instead of
to the official liquidator. [S. 271]
(vi) Proof of claim: - The court may fix time or times for giving the creditors
opportunity to prove their debts or claims. If any creditor fails to prove his claim, he
may be deprived of his right. [S. 174]
(vii) Payment of due: - At first the court shall adjust the rights of the contributories
and in case of any surplus amount, it is to be distributed to any other persons entitled
there to. [S. 275]
(viii) Dissolution of company: - When the affairs of the company have been
completely wound up, the court shall formally declare that the company has
dissolved. [S. 277 (1)]
The order of the court regarding the dissolution shall be reported within 15 days by
the official liquidator to the Registrar and the register shall record this. [S.277 (2)]

Consequences of compulsory winding up:

(i) Effect of winding up order: - When a company is ordered to be wound up, it shall
operate in favour of all creditors and of all the contributories of the company. In such
case, it shall be deemed that the petition is made by the creditors and the
contributories jointly. [S.246]

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 (ii) No suit in winding up order: - When a winding up order has been made or a
provisional liquidator has been appointed, no suit shall be proceeded or commenced
against the company except by leave of the court. [S. 250]
(iii) Official liquidator to be appointed: - When a winding up order made, to conduct
the proceeding in winding up a company any person may be appointed by the court
as an official liquidator. [S. 256]
(iv) Custody of company's property: - On the order of winding up of the company,
the official liquidator shall into his custody or under his control all the property
effects and actionable claims to which the company is prima facie entitled. [S.260]
(v) Termination of the director's powers: - When the company is ordered to be
wound up 'the directors' powers shall be terminated and the official liquidator(s)
shall have all powers in respect of conducting the wind up proceeding.
(vi) Property deemed to be in the custody of the court: - Where a winding up order
is made all the property and effects of the company shall be deemed to be in the
custody of the court. [S. 260 (2)]
(vii) Security of the secured creditors: - A secured creditor is entitled to realise his
security without the leave of the winding up court. The reason behind it is that a
secured creditor is deemed to remain outside winding up. [Re Maksudpur
Refrigeration Industries [1977] 47 Comp. Cas . 67.

2. Voluntary winding up:

A voluntary winding up is different from compulsory winding up. This mode of winding up is more
common and advantageous in the present days. When the members and the creditors settle the
affairs of the business in their own accord without the intervention of the court it is called
voluntary winding up. This form of winding up has more advantages because there are fewer
formalities to maintain in the course of winding up. However,
Topman has explained the object of the voluntary winding up. He says,
"The object of a voluntary winding up is that the company and its creditors shall be left free
to settle their affairs without coming to the court and to provide them with every facility for
applying to the court.’’

Initiation of voluntary winding up: [S. 286]

Under section 286, a voluntary winding up of company may be initiated in the following
circumstances:
(i) By adoption of ordinary resolution: - A company may be wound up voluntarily by passing
an ordinary resolution when the period, if any, fixed for the duration of the company by the
articles expires, or the even, if any occurs, occurrence of which articles provide that the

9
 company is to be dissolved and the company in general meeting has passed a resolution
requiring the company to be wound up voluntarily.
(ii) By adoption of special resolution: - For any special resolution, if a company resolves by
passing a special resolution that the company is to be wound up, it may be wound up". It
may be pointed out here that if the winding up is preceded by some other resolutions which
are invalid, the totality of the winding up shall not be invalid because of mere invalidity or
irregularity of such procedures"", unless such invalidity hits the key procedure or ne the
greater interests of the shareholders. However, mere irregularity in passing the resolution
such as shorter notice may be waived by shareholders.
(iii) By adoption of extra-ordinary resolution: - If the circumstances suggest the
shareholders that it is quite impossible for the company to pay the debts or it is not
reasonable to continue its business and so, it is advisable to wind up the company then by
passing an extra-ordinary resolution the company may be voluntarily wound up. [S. 286 (1)
(c)]
(iv) Commencement of voluntary winding up: - A voluntary winding up all be deemed to
commence at the time when the resolution for such a winding up is passed. [Sec. 286 (2)]

Types of voluntary winding up: [S. 290]

Subject to declaration of financial solvency of the company, the voluntary winding up may be of
two types:
(i) Members voluntary winding up; and
(ii) Creditors' voluntary winding up.

(I ) Members voluntary winding up:

A voluntary winding up is said to be members’ voluntary winding up when a
declaration of solvency is made by the directors in accordance with the provisions of
this Act. So, in a voluntary winding up if there is a declaration of financial solvency to
this effect that the company has ability to pay its debts then it will be considered as
voluntary winding up. To determine whether a voluntary winding up is ether
members 'or creditors' palmers comment may be mentioned here. He says, "the test
is not whether the company is solvent or not but whether the declaration of solvency
has been made before the general meeting passed the resolution for winding up. If
this has been over looked, such a declaration can't be made after that general
meeting. In that case the voluntary winding up would technically be creditor's
voluntary winding up though the company may be financially solvent."
Procedure of members' voluntary winding up: In case of members' voluntary winding up, the
following procedure is followed:
(i) Declaration of financial solvency:- Where it is proposed to wind up a company voluntarily,
the directors of the company or, in the case of a company having more than two directors,

10
the majority of the directors shall at a meeting of the directors held before the date on which
the notice of the meeting at which the resolution for the winding up the company is to be
proposed are sent out, make a declaration verified by an affidavit to the effect that they
have made a full inquiry into the affairs of the company and they have formed an opinion
that the company will be able to pay its debts in full within a period of three years form the
commencement of the winding up. [Sec. 290 (1)]
(ii) Submission of this declaration to the registrar: - Where directors make a declaration of
financial solvency of the such declaration shall be supported by a report of the company's
auditor which is required to be delivered to the Registrar for the purpose of registration
within the prescribed time mentioned in sec 290 (1). It is compulsory to deliver such report
and any default of doing so will render the declaration ineffective. [Sec. 290 (2)]
(iii) Adoption of decision of winding up: - The decision of member’s voluntary winding up
shall be adopted in the general meeting of the company. To take the decision the following
provisions as per sec. 286, shall be applicable:

A company may be wound up voluntarily:

(a) if any period, fixed for the duration of the company by the articles, expires; or
(b) when the articles provide that on the happening of any event the company is to
be dissolved and if it happens or occurs; or
(c) if the company resolves by special resolution that the company be wound up
voluntarily; or
(d) under certain circumstances if the company fails to continue its business then
by passing an extra-ordinary resolution.

(iv) Notification of decision: - When a decision for winding up company is taken, it is to be

notified within 10 days of the passing of the resolution by advertisement in the official
Gazette and also some newspapers circulating in the district where the registered office of
the company is situated. [Sec. 289 (1)]
(v) Appointment of liquidator: - The company in general meeting shall appoint one or more
liquidators for the purpose of winging up the affairs and distributing the assets of the
company and may fix the remuneration to be paid to him or them. [Sec. 292 91)]. And on
the appointment of the liquidator(s), all the powers of the directors shall cease. [S. 292 (2)]
(vi) Call of general meeting: - If the winding up event continues for more than one year, the
liquidator shall summon a general meeting of the company at the end of the first year and
at the end of each Succeeding year, or as soon thereafter as may be convenient within 90
days from the end of the year. He shall lay before the meeting an account of his acts and
dealing and the progress of the winding up during the year. [Sec. 295]
(vii) Final meeting and dissolution: - As soon as the affairs of the company are fully wound
up, liquidator shall make up an account of the winding up of showing how the winding up
has been conducted and the property of the company has been disposed of, and there upon

11
 shall call a general meeting of the company for the purpose of laying before it the account,
and giving explanation thereof. [Sec. 296 (1)]
(viii) Submission of documents to registrar: - When the final meeting is held, within one
week of this meeting, the liquidator shall send a copy of the accounts and a return of the
meeting to the Registrar and the official liquidator. However, if a quorum is not present at
the meeting so called, the liquidator shall in lieu of the said return make a return that the
meeting was duly summoned but no quorum was present thereat. [S. 296 (3)]
After the holding of the final meeting and the submission of documents to the Registrar, the
legal entity of the company shall be dissolved.

III. Creditors voluntary winding up:

When a resolution is passed at the general meeting to up a company voluntarily without any
declaration of financial solvency of the company, it is called creditors voluntary winding up.
n other words if the directors make no declaration of solvency before the members pass a
winding up resolution the winding up is a creditors voluntary winding up. [S. 290 (3)]

Procedure of creditors voluntary winding up: In case of creditors voluntary winding up the
following procedure is followed:
(i) Adoption of decision: Though it is a creditors voluntary winding up, the decision of such
winding up is taken at the general meeting of the company by the members. However, for
this type of winding up the members pass an ordinary or an extra-ordinary or a special
resolution. [S. 286]
But there is no declaration of financial solvency by the directors. [S. 290]
(ii) Meeting of the creditors: - A meeting of the creditors shall be called either on the same
day or the day next to the day when the resolution for voluntary winding up is passed. The
notice of the meeting of creditors to be sent by post, along with the notice of the meeting
of the company at which the resolution for the winding up will be passed. [S. 298 (1)]
Rules regarding the meeting of the creditors:

• The notice of the meeting must be advertised in the official Gazette and in some
newspapers circulating in the district where the registered office of the company is
situated". [S. 289 (2)]
• The board of directors will submit before the meeting a full statement of the position
of the company's affairs together with a list of creditors of the company and the
estimated amount to their claims.
• Te directors shall also appoint one of their numbers to preside at the meeting. [S.
298 (3)]
(iii) Appointment of liquidator: - The creditors and the company their respective meeting
may nominate a person to be liquidator for the purpose of winding up the affairs of the

12
 company and distributing its assets. If the creditors and the company nominate different
persons, the person nominated by the creditors shall be liquidator. If no person is nominated
by the creditors as the liquidator, then the person nominated by the company shall be
liquidator. (Sec. 299)
iv) Appointment of committee of inspection: - The creditors may appoint a committee of
inspection consisting of not more than five persons at the meeting held in pursuance of sec.
298 or at any subsequent meeting. If such a committee is appointed, the creditors may
appoint such number of persons as they think fit but not exceeding five in number. [Sec.
300]
(v) Arrangement of annual meeting of the shareholders and creditors: - If the event of
winding up continues for more than one year then the liquidator shall summon the meeting
of the shareholders and creditors as soon as at the end of the year and shall lay before the
meetings an account of his acts and dealings and of the conduct of the winding up during
the preceding year. [S. 304 (1)]
(vi) Final meeting and dissolution: - When the affairs of the company are fully wound up,
the liquidator shall make up an account of the winding up showing how the winding up of
the company has been conducted and the property of the company has been disposed of
and then he shall call upon a general meeting of the company and a meeting of the creditors
for the purpose of laying the account before the company and giving explanation thereof.
[Sec305 (1)]
The meetings shall be called by advertisement in which the time place and objects shall be
contained. Before the meetings are held, at least one-month notice is required to be
published maintaining due process. [S. 305 (2)]
(vii) Submission of documents to the Registrar: - When the final meeting is held, the
liquidator, within one week of the date of the meeting, shall send to the Registrar a copy of
the account and shall make a return to him of the holding of the meeting with date. [S.
305(3)]

3. Winding up subject to supervision of court.

After passing the resolution for winding up the Company, it the winding up is completed voluntarily
on the application of the shareholders or of the creditors or of both of the parties or on any other
ground, but with the supervision of the court then it is called winding up of a company subject to
supervision of the court.
Our Act provides that,
"when a company has by special or extra. ordinary resolution, resolved to wind up voluntarily,
the court may make an order that the voluntary winding up shall continue, but subject to
such supervision of the court, and with such liberty for creditors, contributories on others to
apply to the court and gradually on such terms and conditions as the court thinks just.”

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Grounds: The object of making a winding up subject to supervision of the court is to protect the
interests of the creditors and contributories. In Re Prince of Wales State Quarry Co, it was held
that such order may be passed if:
a) the liquidator under voluntary liquidation is partial or is negligent in collecting the assets;
or
b) the rules relating to wind up are not being observed; or
c) the resolution for winding up was obtained by fraud.
Effects: A winding up order subject to supervision of the court has the following effects:
i. it gives the court jurisdiction over suits and legal proceedings as in the case of a
petition for winding up by the court. [Sec. 317]
ii. the court may consider the wishes of the creditors or contributories to decide the
mode of winding up or to appoint the liquidators. [Sec. 318]
iii. the court can appoint an additional or liquidators. The court can remove him and
fill the vacancy caused by such removal or death or resignation. [S. 319]
iv. where a company is wound up subject to supervision of the court, the liquidator
may exercise all his powers reasonably, without the sanction intervention of the
court. (S. 320(1)]
v. when an order of winding up subject to supervision of the court is made, it shall,
for all purposes including stay of suits or other proceedings, be deemed to be an
order of the court. It shall also confer full authority on the court to make calls or to
enforce calls made by the liquidators. [Sec. 320 (20)]

Difference between voluntary winding up and compulsory

winding up by court:
The legal entity of a company is eradicated both by the voluntary winding up and
compulsory winding up, but in some procedural and other aspects there are some
dissimilarities between the two which are as follows:-
(i) Decision of dissolution:- A company is voluntarily wound up by the decision of the
shareholders. But compulsory winding up of a company is effected by the order of
the court.
(ii) Declaration of solvency: - Declaration of solvency by the directors is material in
case of voluntary winding up. A company's winding up can't be said as voluntary
winding up unless the solvency of the company is declared by the directors. [S. 290]
On the other hand declaration of solvency is not so important in case of compulsory
winding up.
(iii) Commencement of winding up: - A voluntary winding up shall be deemed to
commence at the time when the resolution for such a winding up is passed. [S. 287]
But the winding up of a company by the court or compulsory winding up shall be

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 deemed to commence at the time of the presentation of the petition for the winding
up. [S. 247]
(iv) Appointment of liquidator: - In case of voluntary winding up, he liquidators are
appointed by the shareholders or the creditors. [Section. 292+299]
On the other hand, for the purpose of conducting the proceedings in winding up a
company, the court usually appoints a person to be called an official liquidator. (S.
255)
(v) Preparation of list:- In the case of voluntary winding un t lists of creditors and
contributories are prepared by liquidator in his own responsibility.
But in case of compulsory winding up lists of creditors and contributories are
prepared by the order of the court.
(vi) Appointment of committee of inspection:- In a voluntary winding up a
committee of inspection is appointed to observe the winding up event.
But no committee of inspection is appointed in a compulsory winding up.
(vii) Kinds of winding up:- A voluntary winding up may be either:
i. creditors' voluntary winding up; or
ii. members' voluntary winding up.
But there is no classification in a compulsory winding up.
(viii) Submission of documents: - In the voluntary winding up system, the liquidator
submits the necessary documents like accounts, returns etc before the meetings of
the creditors before the meetings of the creditors and shareholders.
But in case of compulsory winding up system, necessary documents are required to
be submitted before the court.
(ix) Actual time of dissolution: - In case of voluntary winding up. The actual or final
dissolution of a company is completed after 90 days of the submission of the return
and of accounts of the dissolution to the Registrar.
But in a compulsory winding up when the court declares the winding up of a
company, it loses its legal entity.

Differences between member’s voluntary winding up and creditors

voluntary winding up:
The basic differences between member's voluntary winding up and creditor's voluntary winding
up are mentioned below:
(i) Declaration of solvency: - In the case of a members voluntary winding up, the directors
make a declaration stating that the company has no debt or if has it will be able to pay the

15
debts within a certain period. Rut such a declaration has not been made & delivered to the
Registrar, it is called creditors voluntary winding up. [S. 290]
(ii) Circumstances of winding up:- Generally, a member's voluntary winding up occurs:
a) if any fixed duration of a company expires; or
b) by a resolution passed by the company; or
c) when the company can't carry on its business and it is advisable to wind up. [S. 286
But a creditor's voluntary application of the creditors of the company. It generally
happens when the company fails to meet the claims of the creditors.
(iii) As to meeting:- In case of a member's voluntary winding up, it is not necessary to call a
meeting of creditors. It is enough to call a meeting of members to pass an ordinary or special
resolution for the winding up of the company.
On the other hand, in a creditor's voluntary winding up a meeting of creditors is required
to call either on the same day or the day next to the day when the company passes a
resolution for voluntary winding up. [S. 298]

(iv) Appointment of committee of inspection: - In a member's voluntary winding up there

is no committee of inspection. But in a creditor's voluntary winding up the creditors may
appoint a committee of inspection at the meeting of creditors. [S. 300]
(V) Appointment of liquidator: - In case of a member's voluntary winding up, the liquidator
is appointed at the general meeting. But in a creditor's voluntary winding up, the members
and the creditors nominate a person to be liquidator, but if the creditors and the company
nominate two different persons the person nominated by the creditors shall be the
liquidator, and if no person is nominated by the creditors then the person nominated by the
company shall be the liquidator. [S. 299]
(vi) Exercise of powers by the liquidator: - In a member's voluntary winding up, the
liquidator can exercise some of his powers with the sanction of a special resolution of the
creditor's voluntary winding up, the liquidator can do so with the sanction of the court or of
the committee of inspection or of the meeting of creditors. [S. 303]
(vii) Controlling power: - In case of a member's voluntary winding up, the members have
dominating control over the winding up proceeding and there is no direct participation of
the creditors in this company process.
But in a creditor's voluntary winding up the creditors have dominating control over the
winding up proceeding as if the company was insolvent.
(viii) Circumstances of dissolution: - In case of member's voluntary winding up, the company
is generally solvent and under the solvency of the company, the winding up proceeding is
completed.

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But in case of creditor's voluntary winding up, the company is generally not solvent. However, our
thing must be kept in mind that 'declaration of solvency' by the directors is the core point to decide
whether a winding up proceeding is of members or creditor. Even in case of a solvent company it
may be considered as creditor’s voluntary winding up if there is no 'declaration of solvency by the
directors.

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