/ m o Question No No 18 18: Define winding up or c Li quidation of a Joint Stock Company and and di scuss in br ief the . difference difference modes modes of wind ing up or liquid ation of JSC JSC . e OR Describe the member’s member’s volunt ary e windin g up and rJSC. creditor’s vol untary winding up of JSC. f An A n s w er: er : e WINDING UP OR LIQUIDATION OF JOINT STOCK n COMPANY: i INTRODUCTION: l Basically JSC is a separate legal Entity, which is formed n and created under the law. It is no doubt that company o enjoyed long life, but some legal or personal reasons l and also affected the life of the company A company may he l formed for a specific objective and at the completion the company automatically closed. a A company may he formed for a specific time and at . maturity the company automatically closed. wLIQUIDATION: w Definitions: “If company company is i s in a posit pos close e wit ion t o pay it s debts and w ant s t o clos it s act act ivit ivi t ies due to t o any reason reason (legal or personal personal). ). The The / company / is said t o be liquidat liqui dat ed or w inding up.” : company i s a legal pr ocedure “The “The winding w inding up of t he company ocedure in w hich hich all t he affair aff airss p of t he company company ar e wound w ound up. The The ass assets and t t h
OR
/ m balance liabi lit ies are det det ermined and debt debt s are met out of t he balance o of ass asst s sold”. ol d”. c DIFFERENC BETWEEN INSOLVENCY .AND LIQUIDATION: e e “If “If t he company company is not in a posit posit ion t o meet meet it s full obligat ions (acc (account payable / debts / liabi lit ies) ies) r the company company said said t o be f insolvent.” e n i “If t he debt debt s or out st anding debts debt s are met by t he company company l and wi shes hes t o st st op t he act act ivit ies, ies, it is called liquidly or w inding n up.” o l l a . w w w / / : p t t h INSOLVENCY:
LIQUIDATION:
NOTE: So, it is noted that liquidation or winding up is different from the company become insolvent.
/ m o c . e e r f e n (A) Compulsory Winding Up (B) Voluntary Winding Up (C) Winding i Up By Court l n o l l a . w w w / / : p t t h
i. Special Resolution i. Members’ Winding Up i. Resolution ii. Statutory Meetings ii. Creditors’ Winding Up ii. Liquidators not fair iii. Failure to Commence Business iii. Avoid from Rules iv. Reduction in Membership iv. Powers of Court v. Court’s Decision v. Dissolution vi. Unable to Pay the Debts vii. Unlawful and Unauthorized
/ m o c A: - COMPULSOR COMPULSORY Y WINDING WINDING UP: . There are the following reasons for the compulsory e winding up of the Joint Stock company: 1. Special Special Resol Resolut utio ion: n: e The company has decided through r special resolution that it should be wound up under the special activities of the f court, if it finds that this would be against the public e as a whole. interest or the interest of the company n 2. Statutor Statutor y Requirements: i A company may be wound up: l I. If a company fails to hold statutory meeting or does not file the statutory report in n compliance with the o companies Ordinance 1984. II. If the company fails l to hold two consecutive annual general meetings. l a . the Busi ness: 3. Failu Failure re to Commence omm ence w its business If a company company fails to start business within one year of the date of incorporation of the company or suspends or w postpones its business for a whole year then it may be w ordered to be wound up. / 4. Reductio n in i n / Membershi Membershi p: If the number of : members falls below a seven in case of Public Limited p Company and less than two in case of Private Limited Company then it may be ordered to be t t h viii. Just &
Equitable
/ m wound up. o c 5. Court’s our t’s Decis Decision ions: s: . If the court is not satisfied with the working, management e and business affairs of the company then the company ecourt. must be wound up by the order of the r 6. Unabl Unable e to pay its i ts Debt Debts: s: If the company is fail to pay its debts due to following f reasons: e a) Statutory Notice ► if the company’s creditors owes a n sum exceeding 1% of its paid up capital or Rs. 50000 whichever is is less, has served i on the company company a demand for the payment and the company l has for 30 days neglected to pay or enter into a compromise to satisfy n creditors, then it may be ordered to be wound up. o b ) Decr Decree eed d Debt Debt ►The degree of court against the l in whole or in part etc. company is returned unsatisfied l ► Unable to pay debtc) Commercial Inso Insolvency lvency debt exceeding Rs.5, 000 to a the creditors. . 7. Unlawful and Unauthorized: w A company may be wound up: w lent activit ies. a) If it operates operates fraudulent fraudu b ) If the business bus iness w is un auth oriz ori zed. c) If any any director found g uilty of o ppression towards / any member member or minor shareholder. shareholder. / d ) Do not maintain maintain pr oper & tru e account account s. e) Av A v o i d anc an c e : of o f l aw & d i r ect ec t i o n s . p 8. Just and t Equitable: t h
/ m In following ways the court’s opinion may be to wind up o the company: c a) Go against th e objective. b ) Deadloc Deadlock k in i n Management. Management. . c) Company having no p roperty. e d ) Continu ous Loss L osse es etc….. etc….. e B:-VOLUNTARY WINDING Up: r The voluntary winding up of JSC f without tire supervision of court is divided in tow categories e as: a) Voluntary olu ntary Windi ng u p By Members embers n b) Voluntary Voluntary Winding up B y Creditor Creditor s i a) VOLUNTARY VOLUNTARY WINDING WINDING l UP UP BY MEMBE MEMBERS: RS: (Sec. 362, 371) n In case of members’ members’ v oluntary win ding up th e o dire dir ectors cto rs declare in the th e meetin meeting g of share sh arehol holders ders that l ation. The following the company company is fit fo r liquid l by the members: circumstances are laid down a 1. Expiry xpi ry of Perio Period: d: . A company may be wound up voluntarily by the members, w after the expiry of period, by passing a special resolution wmeeting. in the annual general w 2. Special Special Resol Resolut utio ion: n: / If the company resolves by special resolution that the / company be wound up voluntarily or this resolution three : of the total votes in favor of it. must be three fourth p 3. Solvency t Decl Declaration aration:: t h
/ m If a majority of directors makes a statutory declaration to registrar that the company will able to pay o its debts in full within one year. If the company resolves c by special resolution that the company be wound up. voluntarily or this resolution three must be three fourth of the total votes e in favor of it. e 4. Appointment of Liqu idator: rof the company In general meeting, the shareholders appointment the liquidator to wind f up the affairs of the company. Assets of the company e are also distributed by liquidato liquidator. r. The notice regarding regarding the appointment appointment must be n sent to registrar. After the appointment of liquidator, all the i and transferred to powers of the directors are ceased liquidators. l n 5. Meetin eeting g with w ith Credit Creditors ors:: o The Liquidators must call a meeting of the creditors on the lings same day or or one the the follow followings lto know the exact value of day after their appointment debts of the company. A a notice must be sent in writing to each creditor for this purpose. . 6. Ann ual Meeting Meeting : w After each year end, w the liquidator liquidator calls the general meeting of the shareholders. In this meeting, the liquidator w must submit completed work of the company’s winding up / to the members. / : 7. Final Meeting: p the affairs After winding up affairs of the company, the liquidator calls the general t meeting of the shareholders. In this t h
/ m meeting, the liquidator must submit the final accounts of o the company’s affairs to the member. c 8. Dissolu iss olutio tion n of the t he Comp Company: any: . After go through the above procedure procedure and when it e complete, the registrar registers the documents, which e from the date sent by the company. And after (3) months of registration, the company will be r dissolved. f b) VOLUNTARY VOLUNTARY WINDING WINDING Up BY CREDITOR CREDITORS: S: (Sec. (Sec. e 373, 382) n decllarat A w i n d i n g u p i n t h e cas c ase e of o f w h i c h a dec ar atii o n o f i to the registr ar is solvency sol vency has not been delivered delivered known as creditors creditors ’ voluntary l winding up . A company can be dissolved by adopting n the following methods. o 1. Declaration of Solvency: l winding up, it is not In case of creditor’s voluntary lto make a statutory declaration necessary for the company regarding its solvency. a . 2. Special Special Resol Resolut utio ion: n: A general meeting of w the company’s shareholders shareholders is called w resolution for the dissolution of to pass an extra ordinary the company, because it cannot continue its business due w to heavy liabilities. / / 3. Creditor’s Meeting: : call a meeting of the creditors on the The Company must p the followings same day or one t t h
/ m day after the general meeting of the company. A notice othis purpose. must be sent in writing to each creditor for c 4. Appointment of Liqu idators: . The creditors and the company at their respective meeting e may appoint persons to act as liquidators. If different e company persons are nominated by creditors and r shall hold good. respectively the opinion of the creditors f e 5. Intimation nti mation to Regis Registrar trar & Final Final Meeting: Meeting: n The information regarding the notice of passed resolution i(10) days after the date of must be sent to registrar within creditor’s meeting. In the final lmeeting, the liquidators place before then the full accounts of the company’s n affairs and a copy of these accounts is also sent to o registrar within (7) days. l l 6. Dissolution: After go through the above procedure and when it procedure a complete, the registrar registers the documents, which . sent by the company. And after (3) months from the date w will be dissolved. of registration, the company w C: - VOLUNTAY VOLUNTAY WINDING WI NDING UP BY COURT: COURT: (Section w 396) / When shareholder shareholder or creditors volunt arily give the / application to the court for t he purpo se of wind ing up :company, the affairs affairs of t he company, then then win ding up pr ocess is p r the supervisio conduc ted under unde supervisio n of cour t. The t t h
/ m liquidation under the supervision of court takes place due o to following circumstances: c 1. Grounds rou nds for f or Issuin g Supervi Supervision sion Order: Followings are the main reasons: r easons: . i) Fraud raud in Re Resolution: e The court can accept the petition for supervision winding ebeen obtained by up if the resolution for winding up has r the creditors. fraud. The purpose may be to deceive f ii) Liquidators Liquidators Not Not Fa Fair: e The liquidator may not fair in his duties. The working in the n particular manner can compel the others to go to the court i of law for making justice. l iii) Avoid Avoid from Rule Rules: s: n Basically the liquidator is bound to follow the rules of o winding up. If he fails to comply with the requirement of lcan apply to the court for the law any entitled person l supervision order. a 2. Powe Powerr of the Court: Court: . The court has the power to appoint an additional wany liquidator. liquidator, or to remove w 3. Dissolution: w After the supervision supervisio n order is made, the liquidator liquidator may / exercise his powers in winding up of a company. On / completion of winding up, the court will make an order that the company is : dissolved. p t t h
/ m CONLUSION: o c . e e r f e n i l n o l l a . w w w / / : p t t h
It is concluded that a Joint Stock Company has been wound up by Compulsory winding up, by Shareholders, by Creditors and under the Supervision of the Court. Elected Liquidators perform the function to settle the Assets and Liabilities of the Company and also provide reports to shareholders, creditors and Company’s Registrar.
/ m o c . e e r f e n i l n o l l a . w w w / / : p t t h
