Q. What is winding up or Liquidation of company, describe in brief the different modes of Joint Stock Company?

By liquidation or winding up of a company meant the end life of the company. A company is the creature of law. It therefore cannot die a natural death. The termination of its existence is affected by law. This winding up of the company is a legal procedure in which all the affairs of the company are wound up. Its assets and liabilities are determined, assets are sold out and claims of the creditors met out of sale proceeds. The balance if any, is distributed among shareholders, in proportion of their shareholdings. This is done by liquidator.

Modes of dissolution
Compulsory Winding up Voluntary Winding up Winding up by Court

Compulsory Winding up
The circumstances in which a company may be compulsory wound up by the court are as under:

1. Special resolution
A special resolution has been passed by the company to wind it up by the court.

2. Statutory meeting not held

If a company fails to hold statutory meeting or does not file the statutory report in compliance with the companies ordinance.

3. Commencement of business
If the company does not commence business within one year of the date of incorporation of the company or suspends its business for a whole year.

4. Reduction in membership
If the number of members fails below seven in case of a public limited company. (Less than two in case of private company).

5. Courts decision
If the court is fully satisfied that there is a complete deadlock in the company and affairs of the company cannot be carried on satisfactory, the company then would be wound up by the court. The action of the court will be just and equitable.

6. Failure to pay the debt

When the company fails to pay its debts then in such circumstances the company would be wound up.

(a) Members voluntary winding up

In case of members voluntary winding up, the directors declare in the meeting of shareholders that the company is fit for liquidation. The meeting then passes a resolution for voluntary winding up and appoint liquidator themselves. The voluntary winding up of the company by the members themselves may take place under the following circumstances.

1. Expiry of time
If the period fixed for the duration of the company in the Articles has expired, the company may be wound up voluntarily by passing a resolution in the general meeting.

2. Special resolution
If the company resolves by a special resolution that the company be wound up, the company then will be put to an end.

3. Declaration of solvency
When majority of the directors in board meeting declare the company solvent and they want to wind up the company.

4. Appointment of liquidator
The company in general meeting of the shareholders shall appoint one or more liquidators for the purpose of winding up the affairs and distributing the assets of the company. The shareholder fixed the remuneration to be paid to liquidator.

5. Final meeting and dissolution

When the liquidation is completed, the liquidator calls the final meeting of the shareholders and creditors. He places before them the full account of winding up and also sends a copy of the report to the registrar. The registrar registers the account and the return and the company is automatically dissolved after three months of registration of return.

(b) Creditors voluntary winding up

A winding up in the case of which a declaration of solvency has not been delivered to the registrar is known as creditors voluntary winding up. The company calls a meeting of its creditors and appoints a liquidator. When liquidation is complete, the liquidator calls the final meeting of the company and the creditors and places before them full account. A copy of this report is also sent to the registrar. The registrar on receiving the accounts and other documents takes the action of dissolution of company as laid down in the companys ordinance.

1. Declaration of solvency
The declaration of solvency is not necessary in case of creditors voluntary winding up.

2. Special resolution
Special resolution is passed for the purpose of winding up.

3. Meeting of creditors
After this it is necessary to call the meeting of creditors on the same day or on the next day.

4. Report of company
In creditors meeting, the directors present a report of financial position of company. In this report the names and addresses of creditors are mentioned.

5. Appointment of liquidator
After this the liquidator is appointed for the winding up of company. The liquidator handles all the affairs relating with the liquidation.

6. Inspection committee
An inspection committee is also appointed by members or creditors which consist of five members.

7. Final meeting and dissolution

When the liquidation is completed, the liquidator calls the final meeting of the shareholders and creditors. He places before them the full account of winding up and also sends a copy of the report to the registrar. The registrar registers the account and the

return and the company is automatically dissolved after three months of registration of return.

Winding up under supervision of court

When shareholders or creditors give the application to the court for the winding up purpose then winding up process is conducted under the supervision of court.

Grounds for issuing supervision order

The liquidation under the supervision of court takes place when: i. Liquidator performs his duties in partial manner. ii. If the liquidator does not follows the rules of winding up. iii. If resolution for winding up is obtained by fraud. iv. If liquidator does not take interest for realizing the assets. v. It liquidator does not collect the full amount of assets of company.