Procedures for Voluntary Winding Up of Company by Members

Voluntary winding up is of two types. They are Members Voluntary winding up, and Creditors’ Voluntary Winding up. This article discusses the procedures pertaining to Members’ Voluntary Winding up of a company.

Voluntary winding up of company by members

Voluntary winding up of company by members

Members’ Voluntary Winding Up of a Company

A members’ voluntary winding up is possible only when the company is solvent and is able to pay its debts in full. In this case, it is not necessary for the members to consult the creditors or to call their meeting. A Declaration of Solvency should be made by the Directors.

Declaration of Solvency

The Declaration of Solvency is an important document in the members’ voluntary winding up. The declaration must be made in the meeting of the Board of Directors. It should be made by a majority of the directors and certified by an affidavit.

The declaration must be accompanied by a statement of assets and liabilities up to the date of declaration. A copy of the Auditor’s Report on the Profit and Loss Account and on the Balance Sheet from the last accounting date to a date ending with the latest practicable date immediately before the date of making the declaration also attached to it.

The Declaration should be made and filed with the Registrar at least 5 weeks immediately before the date on which it is proposed to pass the resolution relating to the winding up. Otherwise, the declaration will not be effective.

Procedure for A Members’ Voluntary Winding Up

The following procedure should be adopted in case of Members’ Voluntary Winding up.

1. Holding of the General Meeting

After filing the Declaration of Solvency, the Directors should arrange to convene a meeting of the company and a resolution should be passed to this effect.

2. Appointment of Liquidators

A resolution should also be passed in the same meeting appointing one or more Liquidators. The members should also fix the remuneration of the Liquidator.

3. Notice to the Registrar

The company should give a notice of appointment of the Liquidator to the Registrar within 10 days from the date of appointment. The Liquidator should also inform the Registrar about his appointment within 30 days from the date of his appointment and should also publish the same in the Official Gazette.

4. Powers of the Board etc.

As soon as the Liquidator is appointed, all the powers of the Board of Directors or Managing Directors, or Whole Time Directors or Manager shall come to an end. However, the Liquidator or the members may allow them to continue for the beneficial winding up of the company.

5. Reconstruction in Winding up

Generally, the Liquidator shall take in charge of all the assets of the company, convert them into cash and pay the money first to the creditors and then to the members, if any surplus is left. But sometimes, instead of selling the property of the company for cash, he may sell the assets of the company for shares in another company.

6. Holding of the General Meeting at the end of the First Year

Where the process of liquidation continues for more than one year, the Liquidator must call for a general meeting at the end of the first year and also at the end of each subsequent years. He must submit before the meeting, an account of his acts and the progress of winding up during the year.

7. Final Meeting of the Members

As soon as the affairs of the company are fully wound up, the Liquidator should call for a meeting of the members by giving an advertisement in the Official Gazette and in some newspapers circulating in the district where the Registered Office is situated.

The notice must be given at least one month before the date of the meeting. It should specify the time, date and plan of the meeting. The Liquidator should submit before the meeting an account of the winding up showing

  1. how the winding up has been conducted; and
  2. how the company’s property has been disposed of.

8. Notice to the Registrar and Official Liquidator

The Liquidator, within one week after the date of the meeting, should send a copy of the account along with a return of the meeting, to the Registrar of Companies and also to the Official Liquidator attached to the concerned High Court.

9. Report of the Official Liquidator to the National Company Law Tribunal

On receipt of the account and the return of the meeting, the Official Liquidator should make a scrutiny of the books and papers of the company; After scrutiny, the Official Liquidator should submit a report to the National Company Law Tribunal.

If the report reveals that the affairs of the company were not conducted in a manner prejudicial to the interests of the members or public, the company is deemed to be dissolved from the date of submission of the report.

If the report, on the other hand, contains any adverse remarks, the National Company Law Tribunal must direct the Official Liquidator to make further investigation into the affairs of the company.

On the receipt of the report of the Official Liquidator on such further investigation the National Company Law Tribunal may either make an order that the company shall stand dissolved with effect from the date to be specified by the National Company Law Tribunal therein or make such other order as the circumstances of the case brought out in the report permit.

10. Duty to Call for the Creditors’ Meeting

If, in the opinion of the Liquidator, the company will not be able to pay its debts in full, within the period specified in the Declaration of Solvency, the Liquidator should immediately call for a meeting of the creditors of the company. He should submit a statement of affairs of the company before the meeting.

Thereafter, the winding up shall cease to be a members’ voluntary winding up but will proceed in accordance with the provisions applicable to the creditors’ voluntary winding up.

11. Provisions as to Annual and Final Meeting in case of Insolvency

If in the case of a members’ voluntary winding up, the liquidator finds that the company is insolvent, Secs. 508 and 509 shall apply as if the winding up were a creditors’ voluntary winding up and not a members’ voluntary winding up.

It should be noted that in such a case Secs. 508 and 509 shall apply to the exclusion of Secs. 496 and 497. Sec. 508 deals with the duty of the liquidator to call a meeting of the company and of creditors at the end of each year and Sec. 509 deals with the final meeting and dissolution in case of creditors’ voluntary winding up.


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