Voluntary Winding Up

A company may be wound up voluntarily in the following two ways, as

discussed below:

A. By Ordinary Resolution

An organization might be wound up wilfully by passing an ordinary resolution

when the period, assuming any, fixed for the span of the organization by the
articles, has lapsed. Also, when the occasion, assuming any, has happened,
on the event of which the articles give that the organization is to be broken
down, the organization may, by passing a normal goal with that impact, start
its wilful winding up.

B. By Special Resolution
A company may at any time pass a special resolution providing that the
company be wound up voluntarily. Winding Up commences at the time when
the resolution is passed. Within fourteen days of the passing of the
resolution, the company shall give notice of the resolution by advertisement
in the Official Gazette and also in some newspaper circulating in the district
of the registered office of the company. The corporate state and powers of
the company shall continue until the company is dissolved, but it shall stop
its business, except so far as may be necessary for beneficial winding up. 

As discussed earlier in the article, Voluntary Winding Up is of two kinds:

1) Members’ Voluntary Winding Up;

2) Creditor’s Voluntary Winding Up

1) Members’ Voluntary Winding Up

 This type of winding up occurs when the company is solvent.
 The company needs to declare its solvency at the Board of Directors
meeting.
 This declaration must satisfy the directors’ opinion that the company has
no loans or debts or it will pay the whole debts within three years of
winding up.
 A general meeting is conducted wherein a liquidation is appointed and
remuneration is fixed thereby. With his appointment, all the powers of
the board, Managing Director, or Manager ceases to exist, until and
unless a General Meeting sanctions it otherwise.
  The liquidator must annually call a general meeting to lay the procedure
for winding up and to lay the accounts of his dealings.

2)Creditors’ Voluntary Winding Up

 This type of winding up occurs when there is a declaration of insolvency
by the company i.e., when the company is insolvent.
 Hence, it empowers the creditors of the company to dominate over the
members so that they don’t protest them.
 It requires the company to hold a meeting with the creditors and the
board and make a full statement of the company’s affairs with a detailed
list of creditors including their estimated claims.
 Both the creditors and members at their respective meetings appoint a
liquidator, if at all there is a disagreement, then the creditors will appoint
the liquidator at their discretion.
 The liquidator holds a meeting not only with the members but also with
the creditors to lay the procedure for winding up and to lay the accounts
of his dealings.
 The liquidator at last calls for a general meeting where he winds up the
company.

(If a Declaration of Solvency is made in accordance with the provisions of the

Act, it will be a Members’ Voluntary Winding Up and if it is not made, it
becomes the Creditors’ Voluntary Winding Up. The declaration has to be
made by a majority of the directors at the meeting of the board and verified
by an affidavit. They have to declare that they have made a full inquiry into
the affairs of the company and have formed the opinion that the company
has no debts or that it will be able to pay its debts in full within a certain
period, not exceeding three years, from the commencement of winding up.

The declaration, to be effective, must be made within the five weeks

immediately before the date of the resolution and should be delivered to the
Registrar for registration before that date. It should also be accompanied by
a copy of the report of the auditors on the profit and loss account and the
balance sheet of the company prepared up to the date of the declaration and
should embody a statement of the company’s assets and liabilities as at that
date.

There is a penalty for making the declarations without having reasonable

grounds for the opinion that the company will be able to pay its debts within
the specified period. If the company fails to pay the debts within that period,
it will be presumed that reasonable grounds for making the declaration did
not exist. The liquidator should forthwith call a meeting of the creditors
because the winding up has then to proceed as if it were Creditors’ Winding
Up.)
Procedure For Voluntary Winding Up:

1. Board Meeting
2. Notice
3. Publication
4. Meeting Of Creditors
5. Dissolution Of The Company

1. Step 1: Convene a Board Meeting with two Directors or by a majority of

Directors. Pass a resolution with a declaration by the Directors that they
have made an enquiry into the affairs of the Company and that, having
done so, they have formed the opinion that the company has no debts or
that it will be able to pay its debts in full, from the proceeds of the assets
sold in voluntary winding up of the company. Also, fix a date, place, and
time agenda for a General Meeting of the Company after five weeks of
this Board Meeting.
2. Step 2: Issue notices in writing calling for the General Meeting of the
Company proposing the resolutions, with suitable explanatory statement.
3. Step 3: In the General Meeting, pass the ordinary resolution for winding
up of the company by ordinary majority or special resolution by 3/4
majority. The winding up of the company shall commence from the date
of passing of this resolution.
4. Step 4: On the same day or the next day of passing of resolution of
winding up of the Company, conduct a meeting of the Creditors. If two
thirds in value of creditors of the company are of the opinion that it is in
the interest of all parties to wind up the company, then the company can
be wound up voluntarily. If the company cannot meet all its liabilities on
winding up, then the Company must be wound up by a Tribunal.
5. Step 5: Within 10 days of passing of resolution for winding up of
company, file a notice with the Registrar for appointment of liquidator.
6. Step 6: Within 14 days of passing of resolution for winding up of
company, give a notice of the resolution in the Official Gazette and also
advertise in a newspaper with circulation in the district where the
registered office is present.
7. Step 7: Within 30 days of General Meeting for winding up of company,
file certified copies of the ordinary or special resolution passed in the
General Meeting for winding up of the company.
8. Step 8: Wind up affairs of the company and prepare the liquidators
account of the winding up of the company and get the same audited.
9. Step 9: Call for final General Meeting of the Company.
10. Step 10: Pass a special resolution for disposal of the books and papers
of the company when the affairs of the company are completely wound up
and it is about to be dissolved.
11. Step 11: Within two weeks of final General Meeting of the Company,
file a copy of the accounts and file an application to the Tribunal for
passing an order for dissolution of the company.
12. Step 12: If the Tribunal is satisfied, the Tribunal shall pass an order
dissolving the company within 60 days of receiving the application.
13. Step 13: The company liquidator would then file a copy of the order
with the Registrar.
14. Step 14: The Registrar, on receiving the copy of the order passed by
the Tribunal then publishes a notice in the Official Gazette that the
company is dissolved

Liability of Past Members

Past Members:

 These are the persons whose names do not appear in the register of members of the
company, as on the date of the commencement of the winding-up of the company;
but were members of the company within one year prior to the commencement of
the winding-up.
 They ceased to be members of the company not by death but by transfer or
forfeiture of their shares.
 No past member shall be liable to contribute unless it appears to the Court that the
present members are unable to satisfy the contributions required to be made by
them in pursuance of this Act.
 A past member shall not be liable to contribute in respect of any debt or liability of
the Company contracted after he ceased to be a member.
 In the case of a Company limited by shares, no contribution shall be required from
any past member exceeding the amount, if any, unpaid on the shares in respect of
which he is liable as such member.
 In Jtt Chandler and Co. v. H. Philips A 1926 All 550 case, the Court held that
the liability as contributory shall continue unless they get rid of the shares before
one year from the date of commencement of the winding-up and get the names of
transferees registered in the company’s register of members.
 In Mirza Ahamad Namazi, re, AIR 1924 Mad 703 case, the Court held that a
person whose shares have been forfeited is also liable as a past member, provided
the liquidation commences within one year of the date of forfeiture and the past
member could not be liable to contribute till liability of present members was
exhausted.