There is a special procedure to form a company.

In the same way, in order to bring a company to

an end there is also a legal procedure.

There are 2 terms in this relation which are winding up and dissolution. Let’s look at the
difference between these two terms.

The winding up is a procedure which is meant to put the life of company to an end so by this
process the assets of the company are realized, disposed off and the debts of the company are
paid out of the assets of the company or from assets of contributories as the case may be.
Anything which is left after paying the outstanding liabilities then such amount or assets is
distributed among the members according to their shares. This is the process of winding up.
During this process, a special manager is appointed in order to carry on all of these things and
such person is called liquidator. The process of winding up is also known as liquidation. When
the process of winding up is completed then the court passes the order that this company is now
being dissolved. Winding up is the legal procedure by which a company is taken to its end and
dissolution is that order which finally brings the company to an end and the company ceases to
exist after its dissolution.

Section 342 talks about the dissolution and it says that dissolution takes place when affairs of the
company have completely been winded up and secondly where the court is of the opinion that
the liquidation process cannot be continued due to lack of funds or assets or if the court may
think that it is reasonable in given circumstances that order of dissolution shall be made. In these
three cases, the dissolution would occur.

Dissolution mainly takes place where the affairs of the company are completely wound up.
Dissolution may be granted exceptionally in other cases as mentioned above. In presence of any
these three situations, the court would give the order and by virtue of the order of the court the
company will be dissolved.

Order of dissolution will bring the company to its end but still rights of debts from the company
or if the debts are due to the company by any of the person then all of those rights will continue.

Dissolution takes place after the procedure of winding up.

Liquidator is a person who is appointed to carry on proceedings of winding up. In certain case, if
liquidator is appointed by the court or where winding up procedure is under the court or winding
up is being carried on by the court the in all such cases liquidator would be called as an official
liquidator. His main jobs and purposes are to realize/get all of the properties of the company, to
pay debts of the company and to distribute the surplus among the members of the company
according to their rights or shares. A liquidator takes control of all of the activities of the winding
up.

Consequences of Winding up
Winding up is not itself the end of the company so even after the company has been wound up it
will still be considered a company and the provisions related to the companies shall be applicable
as far as possible to the company which has been wound up. It is given under section 387.

There will be certain consequences whenever the winding up proceedings start.

First of all, when the winding up proceedings start the company would still remain a company
and its legal personality will continue but its management and administration would be changed.
Previously, it was being managed by directors and other officers but now this administration will
be carried out by liquidator or official liquidator till the dissolution of the company.

As regarding the shareholders after the winding up their new statuary role as contributories shall
start. After winding up have been started the change in the status of the member or transfer of the
shares without leave of the court or without approval of the liquidator would be considered to be
void.

Another important aspect is creditors. After winding up proceedings have started, the creditors
would not be able to file any suit or to initiate any legal proceedings against the company except
with the prior leave of the court. In the same way, if creditors have already obtained any decrees
then they will not be allowed to go for execution of those decrees. They will also be required to
prove their claims or to lodge their complaints before the liquidator who has been appointed.

The management will also be affected by winding up proceedings. After the winding up
proceedings have been started, the powers of directors, chief executive and other officers of the
company would cease except their power to give notices or to file certain consents etc. The main
powers of management would be taken away.

After the winding up proceedings have started, the property of the company cannot be disposed
off except with the approval and leave of the court.

These were different consequences which will occur once the winding up proceedings have been
started.

Modes of Winding Up

Section 293 gives three different modes for winding up of a company. So, a company may be
winded up

 By the court or
 Voluntarily or
 Under supervision of the court

These are the three modes for winding up a company.

1. Winding up by the Court

It is also called as compulsory winding up because it is carried on by order of the court.
The circumstances under which a company may be wound up by the court have been
listed in section 301. These circumstances are
 If a company has by special resolution decided that it shall be wound up by the
court then the company will be wounded up by the court. An application should
be given to the court on the basis of this special resolution but practically it is not
very often because the members would want to carry on the company for more
time.
 If the company has committed default in holding statuary meeting or it has not
delivered the statuary report then it may become a ground for winding up by the
court.
 Where a company has not conducted two consecutive AGM then it may also be
wound up by the court.
 Where a company has not submitted its financial reports to the registrar which are
required and this default is for two last consecutive tears then this may also be a
ground.
 The reduction of minimum numbers of members is also another ground. If
membership of private company is less than 2 or if membership of public
company is reduced than 3 members then they may be wound up by the court.
 If a company has been unable to pay its debts then this may also be a ground.
When a company is considered to be unable to its debts is given under section
302. Where a creditor has claim of 100,000 rupees or more and upon his demand
to pay the company has failed to pay for more than 30 days or any decree against
the company and in favor of creditor has not been executed or returned unsatisfied
whole or in part or if the court is satisfied on any other ground on which it may
declare that this company is unable to pay its debts then it may become a ground
for winding up by the court.
 In the same way, if a company has been incorporated for fraudulent/unlawful
purposes or the persons who are managing the company are not maintaining true
accounts of the company or they are committing fraud, misfeasance, malfeasance
in management of the company or the persons who are managing a particular
company have been involved in terror financing or money laundering then it may
also be a ground. If the persons managing the company have refused to act in
accordance with the provisions of memorandum, articles or Companies Act 2017
etc. or if they are not following directions of the commissions or registrar then the
company may be brought to winding up by the court.
 A company which is not carrying on its business or it has been out of operation
for more than one year such company can also be wound up by the court but if
due to some special business circumstances the business could not have been
carried on then the company may seek exemption from this particular provision.
 If the company has been working under a particular license and that license has
been revoked.
 If there is a company which is carrying on its business in a manner which is
against the rights of the members or minority share holders
 If a company was a listed company and it has ceased to be a listed company
 On any other just or equitable ground the court may wind up the company. This is
a wide and discretionary power given to the court. If there is any other ground like
deadlock in management of the company or any other equitable ground the
company may be wound up by the court.

In all of these cases, a company may be wound up by the court.

The process of winding up would start by an application. Section 304 gives the list of
the persons eligible to apply for winding up. Winding up application may be filed by
the company itself but it will be required to give state of its affairs, assets, liabilities
and all other details and providing those details a company may file an application for
winding up. The application can also be filed by creditors of the company or by
contingent creditors of the company. The creditors would be required to make a prima
facie case for winding up and upon furnishing necessary securities the court may hear
their petition. The applicant may also be the contributory but it is required that a
contributory may apply for winding up in case of reduction of membership or the
other requirement is that such contributory must be a member who has been a
member (holding shares) of company for 180 days at least in the last 18 months. The
petitioner may also be a registrar but it shall be required that the registrar must have
obtained sanction by the commission and he shall also have provided an opportunity
to the company to clear its position. The commission or any other authorized person
of the commission may also file petition for winding up of a company but
commission may only proceed for winding up in case of fraudulent activities being
carried on by the company or any unauthorized business is carried on by the company
or business is oppressive for its members. Before proceeding, commission shall
provide enough opportunity to the company to clear its position.

These were the persons who are eligible to apply for winding up on the grounds given
under section 301.

Section 306 says that whenever an application has been presented for winding up then
the winding up proceedings shall be considered to commence from that date.

After the petition has been received by the court, then the court can give injunctions
for any other proceedings related to the company under section 307. The injunction
may be for time till the final order on this petition for winding up is given. For that
 period, a temporary injunction may be granted. After hearing the petition, the court
may pass any of orders given under section 308. These orders include

 Dismissal Orders with or without costs

 Interim Order may also be given for a particular period of time.
 A provisional manager may also be appointed. Provisional Manager will take
care of the affairs of the company till the final order is given. He will be a
person who is eligible to be appointed as a liquidator. His duties or functions
may be limited or may be restricted by the orders of the court but he is having
all other powers which a liquidator possesses. When a provisional manager is
appointed, the court will give the company an opportunity to represent its
position on the appointment because after appointment of provisional
manager he takes charge of all of the affairs and management of the
company.
 On receiving a petition the court may also give order for winding up of the
company or the court may give any other order which it wants to give.

These are different kinds of orders which may be given by the court under section 308.

Whenever the court has given the order for winding up under section 308 then it shall cause
intimation to registrar that an official liquidator has been appointed because after the winding up
order is given then all of the affairs of that company would be taken over by the official
liquidator.

The appointment of liquidator is mentioned in section 315. Section 315 requires that commission
should contain database or a penal of persons from whom the court may choose a provisional
manager or official liquidator to be appointed for a particular company.

Official liquidator should be appointed because this winding up is winding up by the court but no
person can be appointed as official liquidator of more than 3 companies.

The qualifications of official liquidator is that such person must have at least experience of 10
years in the fields of account or finance or law or any professional experience for at least 10
years. Their detailed qualifications are to be mentioned by the commission because the
commission shall maintain the panel.

When the appointment of liquidator is done by the court then he shall give a declaration that he
has no interest attached to the company. Any casual vacancy in the office of liquidator shall be
filled by the court. Otherwise, it is not allowed to any official liquidator to resign before the
completion of his task.

Section 316 provides that once an official liquidator is appointed then he may be removed
afterwards by the court if it is apparent that he is not independent or he is not acting impartially
then he shall be removed. If he is committing misconduct or fraud then he can also be removed.
If he is professionally incompetent or he is not performing his jobs properly, or if it becomes
apparent that conflict of interests is there or he has some kind of personal interest in the affairs of
company then he shall also be removed by the court.

The remuneration and other benefits to the liquidator shall also be fixed by the court under
section 317 but he will be entitled to remuneration if he has completed the process of liquidation.

Section 324 provides that after his appointment the official liquidator shall have the custody of
all of the properties and rights of the company. Everything will be handed over to the official
liquidator.

After his appointment it is required under section 320 that the state of affairs of that company
shall be made to him. This state of affairs would be including all of the details relating to the
company, its assets and liabilities, the cash balance with the company, the details regarding
creditors of the company, the details of debtors of the company, the properties of the company
and if are not in possession of official liquidator then where are those properties, all of the places
of business for last 180 days, all of legal proceedings and their details or any other particulars.
All of these things shall be disclosed and told to the official liquidator.

After receiving the state of affairs of the company, under section 321 the liquidator shall file a
report of all of these affairs to the court and he shall give all of the details which are told to him
and he shall furnish a report under section 321.

On receiving the report, the court shall firstly fix the date up to which the proceedings of winding
up shall be completed under section 322. In the same way, if the court suspects that there are
some persons who have got possession of the property of the company then such person may be
summoned and examined under section 326. If there are promoters, directors or other officers of
the company about whom the allegations of fraudulent activities or any other wrong act relating
to the company is alleged then such persons shall be summoned by the court under section 327
and their public examination may be held. If there are contributories who are absconding or who
have run away then such persons shall be arrested under section 328. If there is any other amount
which is still unpaid by the contributory then such persons may be ordered to pay those unpaid
amounts to the official liquidator under section 329.

These are different actions which are taken by the court after receiving the report by the
liquidator. The liquidator carries on his functions and takes on activities of the company which
are necessary to be completed and performs all of his duties. His duties and powers have been
mentioned under section 337.

His duties are to carry on business so as to complete the payment of the debts, to make any
contract or to issue any document on behalf of the company. He can also sell movable or
immovable property of the company. He can also take part in any legal proceeding by or on the
company. He can also deal with the creditors to settle their claims. He may also take any
professional assistance by any expert person. He can also appoint advocate to take part in legal
proceedings. All other actions which are necessary can be taken by him regarding winding up of
company, distribution of assets and to discharge his legal duties. He can also approach the court
for any directions or orders relating to winding up of the company. He shall also make sure that
he should consult with the contributories as well as creditors of the company in order to take care
of their needs, intentions or opinions under section 340.

After completing all of these things section 341 requires that when he has paid all of the
outstanding debts of the company the surplus which is available with him shall be distribute
among the contributories of the company within 30 days. First of all, the expenses for winding
up or other necessary payments shall be made. Then, the creditors would be satisfied and
afterwards the contributories or members of the company should be given their part in assets of
the company.

When all of these things are duly complied with, then the court shall give the order under section
342 that all of the affairs of the company have been completely wound up and now this company
is being dissolved. By the order of dissolution under section 342, this company would come to an
end and its legal personality would be no more in existence.

2. Voluntary Winding Up
Section 347 provides the circumstances where the company may be wound up
voluntarily.
 Its first possibility is where the duration for the company has been completed.
It is possible that the articles of the company might have fixed particular time
duration for the company. If that duration has been completed then the
company by virtue of a resolution passed at its general meeting may decide to
wind up the company voluntarily. (General Resolution)
 Secondly, if the company has stated any event and the articles provide that in
case of occurrence of that event that the company shall be dissolved then a
resolution may be passed in general meeting of the company to decide that
this company shall be wound up. (General Resolution
 Thirdly, a company may also pass a special resolution at its general meeting
and by that special resolution it would be decided that company should be
wound up voluntarily. (Special Resolution)

In case of all these 3 situations the voluntary winding can be done.

As soon as the resolution for voluntary winding up has been passed in the general meeting in any
of the above mentioned 3 ways then according to section 348 it will be considered
commencement for proceedings of winding up. Once, the resolution has been passed, it is a legal
requirement under section 350 that the company shall publish the notice of resolution of winding
up in at least one English and one Urdu newspaper having wide circulation within 10 days of
passing of the resolution. This notice of resolution for winding up shall also be sent to the
registrar. If the notice has not been sent there shall be the penalty of level 1 on the standard scale.

Consequences of commencement of Voluntary Winding Up

Section 349 states that after passing the resolution for voluntary winding up the winding up shall
commence and it shall be the effect of this commencement that the company would not be
allowed to carry on its business unless it is required for beneficial or proper winding up of the
company. However, the corporate personality and the corporate rights of the company shall
continue until it is finally dissolved.

There are two kinds of voluntary winding up.

 Members voluntary winding up

 Creditors voluntary winding up

Members’ voluntary winding up

Section 352 states that members voluntary winding up is that voluntary winding up where the
declaration of solvency has been made by the company under section 351.

Section 351 states that where a company has decided or is going to decide that this company
shall be wound up voluntarily then the directors, chief executive and other officers of the
company especially the directors may give a declaration that this company is solvent and it is
able to pay all of its debts. So, the directors of the company shall give this declaration that they
have been looking at all of the affairs of the company and in their opinion either the company has
got no debts at all or if there are any debts then it is possible for the company to pay off these
debts with in the period of one year from the commencement of winding up. The exact time in
which this company is being able to pay its debts shall be determined in the declaration of
solvency which is being made by the directors of that company. It is also a requirement that
declaration shall also contain that the company is not being wound up to defraud the creditors or
any other persons.

The declaration is made within 5 weeks preceding the resolution of the winding up and is sent to
the registrar before the date of passing the resolution. A report by the auditor of the company
shall also be prepared containing the financial position, position of assets and liabilities of the
company and this report shall accompany the declaration of solvency prepared by the directors.
That report shall also be sent to the registrar. In this way, this declaration of solvency shall be
made. The declaration is made before the date of passing the resolution for winding up and it
shall be passed within 5 weeks preceding the date of the resolution. After the declaration of
solvency within 5 weeks the resolution for winding up shall be passed.
If it is proved that directors had not acted reasonably and they had no reasonable ground for this
declaration then they will be liable to the penalty of level 3 on the standard scale.

In this way, after declaration of solvency if the company decides to wind up itself voluntarily
then it will be members voluntary winding up.

Next step after declaration of solvency and resolution for winding up is the appointment of
liquidator under section 353. The company shall appoint one or more persons as liquidators who
have given their written consents to act as liquidator in the general meeting. As this is members
voluntary winding up then everything shall be decided by the company in its general meeting. In
this way, the liquidator shall be appointed who shall be responsible for winding up of the
company and distribution of its assets.

After the appointment of liquidator, all of the powers of management shall be transferred from
the board to the liquidator. The board can only have certain powers regarding giving notices for
certain meetings or filing certain consents or notices to the registrar etc. Otherwise all of the
powers of management shall be taken away from the board. Besides his appointment, the
remuneration of liquidator shall be determined by the company by looking at his
professionalism, qualities expertise, nature of his job, the time duration in which the job has to be
completed etc. It is a requirement that a liquidator must complete his job so as to be able to
receive remuneration. If he retires before completing his task or is removed properly then he will
not get any remuneration and if he has been paid any amount then he will be responsible to
return that particular amount. Moreover, he cannot retire except by the prior approval of the
company.

In case, the position of liquidator becomes vacant due to any reason then the company may
appoint any other person to act as liquidator of the company. This new appointment shall be
made in accordance with provisions of section 354 where this appointment shall be made in a
general meeting of that company which shall be held by outgoing liquidator if possible or by the
members of that company or the commission may also be approached to call this particular
meeting.

After the appointment of person as a liquidator, he shall give the notice of his appointment to the
registrar under section 355 within 10 days of his appointment. If he fails to comply with this
provision then he shall be liable to the penalty of level 1 on the standard scale.

Once the liquidator has been appointed, he shall be give the disclosures as it were there under
section 320 and 321 but those things were done due to the order of the court but here the
liquidator shall be acting on his own.

After taking the charge of all of the properties of the company, he shall perform his duties. Most
of the duties of liquidator are similar to the official liquidator which were there under section
337. He shall carry on the business of the company for proper and beneficial winding up of the
company. He shall have the powers to enter into different contracts on behalf of the company. He
shall be able to sale out the property of the company. He shall be able to institute any legal
proceedings or to defend the legal proceedings and so on all of those things should be also
among the powers of liquidator who is working under members voluntary winding up.

Section 356 grants liquidator the power to accept share or any other securities of another
company as consideration for sale of any property. It is not compulsory that he should only
accept cash. He can take other considerations but he shall take into account wishes of the
members of the company.

A special responsibility on the liquidator is that if he feels or it is proved to him at any time that
this company will not be able to pay all of its debts then under section 357 he shall call the
meeting of creditors of the company and after calling this meeting he shall lay the report of
assets and liabilities of the company and shall disclose the particulars of state of affairs of
company to the creditors of the company. Here, the creditors may decide whether the same
person may continue as liquidator or they may appoint a new person as a liquidator to carry on
winding up proceedings.

In case of any dispute on appointment of liquidator between members and the creditors of the
company, anyone can go to the board for determination of issue and according to the orders of
the court the person who will be asked to continue as liquidator shall continue.

After calling the meeting of the creditors in this particular case, the liquidator shall send the
report of this meeting to the registrar and if he fails to do this then he will be liable to face
penalty of level 1 on the standard scale.

Another duty of liquidator is that if the liquidation process takes more than one year then at the
end of every financial year he shall call upon the meeting of members under section 358 and he
shall call the AGM and he shall put the accounts and other statement of financial position of the
company before the members along with the report by the auditor and all other details.

The reports of that company and the copy of accounts of that company shall be sent to every
contributory.

These were some special duties regarding the members voluntary winding up. Other duties are
similar to the duties of official liquidator.

After fulfilling all of these things and after winding up all of the affairs of the company the
liquidator shall prepare the final report regarding the accounts of the company and get them
audited by the auditor of the company and he shall also show that all of the assets of the
company have been applied fully in payment of its debts or if any assets were remaining then
those assets were distributed among the members according to their rights. Upon all of these
details a report shall be prepared and then he shall call a general meeting under section 359 and
he shall present that report before the company and he shall explain all of the details of that
report to the members.

Clause 2 of section 359 requires that the reports and copy of accounts along with notice of the
meeting shall be sent to the contributories 21 days before the holding of the meeting which is
there to be held under section 359. Then, the notice of meeting which is to be held shall be given
in the newspapers, one English and One Urdu with nationwide regulation at least 21 days before
the holding of such meeting.

After holding the meeting, the liquidator shall file to the registrar a final report regarding the
affairs of the company within one week. Even if the quorum of the meeting was not present even
then the liquidator will send the registrar actual report of the affairs of the company as well as the
fact that meeting was called but the quorum was not present.

Upon receiving this by the liquidator, the registrar shall enter these things in his register after
making proper inquiries and scrutinizes and after 90 days of registration of these reports the
company shall be considered to be dissolved.

This was members voluntary winding up.

Creditors Voluntary Winding Up

Under section 352, the creditors voluntary winding up is where no declaration for solvency has
been made. If a company has passed a resolution for its winding up but before that resolution the
directors of the company did not make any declaration of solvency then this winding up will be
Creditors Voluntary Winding Up.

Here, it is clear that company has not enough assets for its winding up so the creditors would be
given powers to carry on the proceeding of winding up because their interests and debts are
involved and they will be concerned with the winding up of the company. They will hence be
given part in the process of winding up of that company.

For creditors voluntary winding up, first of all the resolution shall be passed under section 347
by the company. After passing the resolution, the company shall call meetings of its creditors
within 14 days of passing the resolution for winding up. The notice of meeting shall be sent to
the creditors and it shall also be published in the newspapers. The notice of such meeting of
creditors shall also be sent to the registrar. This meeting of creditors is held under section 362.

For the purpose of creditors meeting, the directors of that company shall prepare a report of the
company regarding its financial position and they shall appoint any of them to preside at that
meeting. Such person shall give the report of financial position of the company to the creditors
and he shall also make other explanations. He shall be presiding the meetings of the creditors.
In the meeting of creditors under section 362 as well as under section 357 meeting of creditors
may also be held where initially the company started members voluntary winding up but the
liquidator felt that it is not possible to satisfy all of the creditors the liquidator shall be shall be
appointed by the creditor as well as by the company but in case of difference of opinion the
liquidator appointed by creditors shall be considered to be the liquidator. If the dispute cannot be
solved then the court may also be approached and according to the determination of the court the
person who will be declared by the court shall act as liquidator.

In this way a liquidator shall be appointed under section 363 and the notice of his appointment
shall also be given to the registrar. Moreover his remuneration shall also be fixed under section
364 but it will be his responsibility to complete his job so as to become fully able to get his
remuneration.

As soon as the liquidator is appointed, all of the powers of the board shall be taken away and the
liquidator will be given all of the powers under section 365. These powers are transferred from
the board to the liquidator.

If any casual vacancy occurs then a new liquidator shall be appointed by the creditors under
section 366.

After his appointment, the liquidator shall perform all of his duties. All of the duties are very
much similar to those of official liquidator or liquidator under members voluntary winding up.

Here, he shall be performing all of these for the creditors.

Under section 367, he can accept shares or any other consideration for the sale of property.

Under section 368, if one or more than one year has been passed from the commencement of
winding up proceedings then the liquidator shall call the meeting of the company as well as of
the creditors where he shall lay the report regarding all of the affairs, accounts and all other
details of the company.

The report of this meeting shall also be filed to the registrar.

After fulfilling all of these things, when the affairs of the company have been fully wounded up
then under 369 first of all the liquidator shall prepare a report of all of these matters and he shall
also get this report audited by the auditor and he shall also prepare a report where all of the
affairs of winding up shall be mentioned regarding the assets and debts etc. of the company.
Then, the liquidator shall call a general meeting of the company as well as of the creditors and he
shall lay the accounts and reports which he has prepared before the meeting of members and the
creditors.
At least 21 days before holding this meeting the report of the liquidator and report of the auditor
etc. shall be sent to every contributory and the notice of that meeting shall be published in the
newspapers.

After holding this final meeting, within one week the liquidator shall file his final report to the
registrar. This report shall be about all of those things which have been discussed in the final
meeting. If the quorum was not complete even then liquidator shall file his report along with the
fact that quorum was not complete for the final meeting.

Upon filing these reports to the registrar, it is the duty of the registrar to register the report of
liquidator and other things after making proper inquiries.

On expiry of 90 days after the registration, this company shall be dissolve.

3. Winding up subject to the supervision of the court

Section 381 says that where a company has passed a resolution for voluntary winding up then
any person may apply to the court and the court may give order upon such application that this
voluntary winding up shall continue but it shall be subject to the supervision of the court. By
virtue of this order, the contributories or creditors of the company shall be able to consult or to
apply to court for any particular matter.

Here the winding up is the voluntary winding up but it shall be subject to the supervision of the
court because court may be approached by any contributory or by any creditor regarding any
particular matter or regarding any condition which may have been fixed by the court.

In this situation, while deciding different things the court shall have regard to the wishes of the
contributories as well as of the creditor upon different matters.

In this case, the court shall have power to affect the process of winding up. The court may
replace the liquidator or the court may give any other order which it deems fit.

The process of voluntary winding up will continue but it shall be subject to the supervision of the
court especially where any of the persons feel that simple voluntary winding up would not be
very much beneficial or it may affect the rights of some persons.

In some cases, winding up subject to the supervision of the court may be converted to winding
up by the court if the valid grounds exist and court thinks that winding up subject to the
supervision of court may not be sufficient.

These were different modes under which a company may be wound up and in all of the modes
when winding up proceedings have been completed then the dissolution may occur and the
company would come to its end.