Detailed Procedure to Close a Private Limited Company
In businesses, it might happen that the directors may decide to shut down the business. Explicit provisions have been laid down for closure of companies under the Companies Act 2013. This is followed by the Insolvency and Bankruptcy Code, 2016 which contains detailed provisions for insolvency and dissolution of the company in certain peculiar cases. Let’s understand in detail steps to close your private limited company.
Compulsory Winding Up
There are certain situations in which the tribunal may decide to close your private limited company. As per Section 271, the tribunal may wind up the company if it receives a petition for winding up on any of the following grounds:
- Passing of a special resolution by the company that it should be wound up
- The company has acted against the integrity and sovereignty of India, security of the state, public order, friendly relations with foreign states, morality, decency etc.
- If an application is made by the Central Government and the tribunal is of the opinion that:
- the affairs of the company have been conducted in a fraudulent manner or
- the company was formed for a fraudulent or unlawful purpose or
- the person concerned in the formation or management of the company has been guilty of misconduct, fraud or misfeasance
4.The company has defaulted in filing its financial statements or annual returns for immediately preceding 5 consecutive financial years
5.In the opinion of the tribunal, it is just and equitable to wind up the company
Steps for Compulsory Winding Up
In case any of the above conditions gets satisfied, winding up proceedings can be initiated by the tribunal. In such a case, the following is the procedure for winding up the company:
1.The petition for winding up shall be presented to the tribunal by any of the following persons:
- The company
- Any person authorised by the Central Government
- The Central Government or the State Government
The copy of the petition filed with the tribunal shall also be filed with the registrar. The registrar shall submit its views to the tribunal within 60 days of receipt of the petition.
2.The tribunal shall give an opportunity of being heard to the company after which it shall pass any of the following orders:
- Dismissing the petition
- Passing an interim order
- Appointing a provisional liquidator till the passing of winding up order
- Passing of winding up order
- Any other order as it thinks fit
3.The tribunal shall, after appointing the provisional liquidator or passing the winding-up order, intimate the company liquidator or the provisional liquidator and the registrar within 7 days after passing the order.
In case the petition for winding up of the company is filed by any person other than the company, then the tribunal shall direct the company to file its objections along with a statement of affairs within 30 days from such order. Further, the tribunal may also direct the petitioner to deposit such security for costs. If the statement of affairs is not filed by the company, then it shall not have the right to oppose the petition. Further, in case the petition for winding up is filed by the company, then it shall be admitted by the tribunal only if it is accompanied by a statement of affairs.
4.In case the Tribunal passes an order for winding up of the company, then it shall appoint the company liquidator for winding up of the company.
5.The winding up proceedings shall be commenced. Following are the functions to be performed during the winding up proceedings:
- Constitution of the winding up committee to assist and monitor the progress of the liquidation proceedings by the company liquidator.
- Monthly reporting during the proceedings and submission of the final report by the winding up committee.
- Stay of suits and other legal proceedings after the winding up order
- Submission of report by the company liquidator
- Custody of the company’s properties
- Preparation and settlement of the list of the debts and contributories
6.After the affairs of the company have been completely wound up, then the company liquidator shall make an application to the tribunal for dissolution of the company. If the tribunal is of the opinion that it is just and equitable that an order for dissolution of the company shall be made, then it shall pass an order that the company shall be dissolved from the date of the order.
7.A copy of the dissolution passed by the tribunal shall be forwarded by the company liquidator to the registrar who shall record the same.
Voluntary Winding Up
The provisions concerning the voluntary winding up of the companies are enshrined by the Insolvency and Bankruptcy Code, 2016. Section 59 of the IBC code lays down the procedure for voluntary liquidation of the companies. As per Section 59, a corporate person can be liquidated voluntarily only if it has not committed any default. Following is the procedure for voluntary liquidation of a private limited company:
- A declaration from the majority of the directors verified by an affidavit shall be submitted stating that the directors have made a full enquiry into the affairs of the company and are of the opinion that either the company has no debt or it will be able to discharge its debt fully from the proceeds of the assets and the company is not liquidated to defraud any person.
- The declaration shall be accompanied with the audited financial statements and records of business operation of the company for the previous 2 years or since the date of incorporation, whichever is later and a valuation report of the assets of the company prepared by a registered valuer.
- Within 4 weeks after of the declaration as filed above, the company shall pass the special resolution for voluntary liquidation in the general meeting of the company appointing an insolvency professional to act as the liquidator. However, in case of liquidation due to the expiry of the period of its duration as fixed by the articles or the occurrence of any event for which the articles provide for the dissolution of the company, an ordinary resolution in the general meeting of the company shall be passed.
- In case the company owes a debt to any person, then the resolution passed by the members shall be approved by the creditors representing 2/3rd of debt in value within 7 days of such resolution.
- Within 7 days of passing the resolution or approval of the creditors, as the case may be, the company shall notify the registrar of such resolution being passed. The voluntary liquidation proceedings shall be deemed to be commenced from the date of passing such resolution.
- After the completion of the corporate insolvency resolution process and winding up of the company’s affairs, an application for dissolution of the company shall be made by the liquidator.
- The adjudicating authority shall pass an order for the dissolution of the corporate debtor. A copy of such order shall be forwarded to the authority under which the company is registered (MCA) within 14 days from the date of such order.
In a Nutshell
Following is the procedure to close your private limited company. However, the above procedure highlighted the cases where the company intended to voluntarily liquidate itself or in some peculiar situations warranting the dissolution of the company by the liquidator.
The Insolvency and Bankruptcy Code, 2016 also specifies the situation and procedure where if the company has defaulted in the payment to financial or operational creditors, then the corporate insolvency resolution process can be initiated against the company. This can also lead to the dissolution of the company if the company fails to revive its operation to normalcy. If you find your company in any of the above peculiar situations, contact your eAuditors first!
Author : Dipen
Date : 08-Jul-2022