Winding up of a company is a process by which the affairs of a company are brought to its legal end. The assets of the company are realized and the same is distributed among its debtors and contributories in accordance with law. The said winding up process is categorized into voluntary winding up and compulsory winding up. This write up details the process of compulsory winding up which is carried out as per the orders of the Hon'ble High Court.
A company is ordered to be compulsorily wound up by the Hon'ble High Court in response to a petition filed by one or more creditors seeking such relief when the company is unable to pay off its debts to its creditors. In the same order the Official Liquidator is appointed with a direction to take charge of the assets and affairs of the company.
Upon receipt of the winding up order, the Official Liquidator, as soon as practically possible, calls for a meeting with the petitioning creditor and other creditors of the company along with the ex-directors of the company in liquidation, where in deliberations are carried out with respect to taking physical possession of the company’s assets, books & records and other matters. The physical possession of the company’s properties are then taken over by the Official Liquidator in the presence of the ex-management and the creditors of the company.
The Official Liquidator as per the directions of the Hon'ble Court values the properties of the company engaging an approved valuer and based on the valuation report bring the properties to sale via public auction conducted in the open court. Further debts due to the company is also realized in accordance with the procedure established by law. After the company has realized sufficient funds, claims against the company are called for, and upon receipt of such claims, they are adjudicated and the list of creditors are filed before the Hon'ble Court along with their corresponding admitted amounts. After finalizing the list of creditors and their entitlements, dividend is distributed either in full or in parts, in accordance with section 529, 529A and 530 of Companies Act, 1956. In the event of the company having funds after settling the creditors claim in its entirety, then the funds are returned to the contributories of the company as ‘return of capital’. With this, the process of liquidation is said to be complete and the Official Liquidator files an application for dissolution of the company, which when approved by the Hon'ble Court the company stands dissolved.
During the process of liquidation, based on the books and records of the company and the Statement of Affairs filed by the ex-directors of the company, if the Official Liquidator is of the view that fraud has been committed in the affairs of the company then the Official Liquidator takes out an application for prosecution of the ex-management of the company to the extent they are found liable.