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Winding Up Of A Company and Winding Up By The Court


When a company has fulfilled the purpose for which it was set up, when it canno1 pay its creditors or when its assets are sold to another company (merger,’ amalgamation, etc.) it must cease to exist. A company must undergo a legal’ process to end. Its legal existence. The legal process involves the realization of assets and discharge of its liabilities. In the even of winding up the business is closed down and the assets are disposed to pay to the creditors. Further the present and past member are called upon to contribute to the assets if the company. The members contributing to the assets are called contributories. A member can be called upon to contribute to the assets of the company only to the extent of unpaid amount on his shares. The amount realized by selling the assets and collected from the contributions is distributed in the following order: 
1) Cost of winding up;
2) Preferential creditors; 
3) Unsecured creditors; 
4) Surplus, if an, among shares holders as per their rights.

Mode of Winding Up:

The winding up of company may be either:

a) by the court; 
b) Voluntary (either members or creditors) 
c) under the supervision of the court.

Winding up by the Court
: A company may be would up by the court under the following circumstances:

(a) If the company, by special resolution, resolved that the company bq wound up by the court; 

(b) If the company fails to hold the statutory meeting or to file the statutor report to the Registrar;

(c) If the company does not commence its business with in a year from its  incorporation or suspends its business for a whole year; 

(d) If the number of member is reduced, in the case of public company, below 7 and in the case of a private company below 2; 

(e) If the company is unable to pay its debts; 

(f) If the court is of the opinion that it is just and fair that the company should be wound up.Voluntary Liquidation

A company may be would up voluntarily if the members and creditors decide to so. Under the following circumstances a company may be wound voluntarily:

(a) When the period, if any, fixed for the duration of the company by the articles has expired;  
(b) If any event has occurred —on the occurrence of which the Articles provide that the company is to be dissolved; 
(c) If the company passes a special resolution that the company be would up voluntarily. 

A liquidator is appointed and an advertisement for the information of the creditors is made. The assets are disposed of, creditors are paid and residue, if any, is distributed among the shareholders. This is called ‘voluntary winding up by the members.”

Winding up under the supervision of Court:

At any time after a company has passed a special resolution for voluntary winding up, the court may make and order that the voluntary winding up shall continue, but subject to such supervision of the court as it thinks fit. The court exercises full control over the proceedings of the winding up. It may appoint a new liquidator whenever it is expedient to do so.


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