Winding-Up by Tribunal – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions
Question 1.
What are the contents of the report to be submitted to the Tribunal by the Company Liquidator against the winding-up order issued by the Tribunal under section 281(1) of the Companies Act, 2013?
Answer:
According to section 281(1) of the Companies Act, 2013, Company Liquidator shall submit to the Tribunal, a report containing the following particulars:
(a) nature and details of the assets of the company including their location and value, including cash in hand and bank balance. Valuation of the assets from registered valuers;
(b) amount of capital issued, subscribed and paid-up;
(c) existing and contingent liabilities of the company including names, addresses, occupations of its creditors, separate amounts of secured and unsecured debts, and in case of secured debts, particulars of the securities given;
(d) the debts due to the company and the names, addresses and occupations of the persons from whom they are due and the amount likely to be realized on account thereof;
(e) guarantees, if any, extended by the company;
(f) list of contributories and dues, if any, payable by them and details of any unpaid call;
(g) details of trademarks and intellectual properties, if any, owned by the company;
(h) details of subsisting contracts, joint ventures and collaborations, if any;
(i) details of holding and subsidiary companies, if any;
(j) details of legal cases filed by or against the company; and
(k) any other information which the Tribunal may direct or the Company Liquidator may consider necessary to include.
The report of the Company Liquidator shall include his comments about the working and management of the company, possibility of any fraud etc. The Company Liquidator shall also make a report on the viability of the business of the company or steps which are necessary for maximizing the value of the assets of the company. Any contributory or creditor of the company has the right to inspect the report submitted by the Company Liquidator, as well as take copies
Question 2.
Write a short note on winding-up under the Companies Act, 2013 with special reference to Insolvency and Bankruptcy Code, 2016.
OR
Question 3.
“Inability to pay debts was generally a ground for moving an application for winding-up of a Company under the Companies Act, 1956. But such a ground no longer exists under the Companies Act, 2013”. State the circumstances which compel a company to be wound-up under the Companies Act, 2013. [June 2018 – Old Syllabus – 5 Marks]
Answer:
→ Winding-up of a company is the process of putting an end to the life of a company. It is a process whereby assets and property of a company is realized (sold) and its liabilities are paid-off from such collections or from contributions from its members, if required.
→ Earlier, the Companies Act, 2013 contained provisions for winding-up of companies on various grounds including inability of companies to pay their debts as well as voluntary winding-up. However, the introduction of the Insolvency and Bankruptcy Code, 2016 have nullified these provisions from the Companies Act, 2013.
→ As per Insolvency and Bankruptcy Code, 2016 and amendments made in the Companies Act, 2013, provisions relating to voluntary winding-up are revoked from the Companies Act, 2013 and included in the Insolvency and Bankruptcy Code, 2016.
→ As per Section 270 of the Companies Act, 2013 (as amended by IBC, 2016), a company registered under the Companies Act, may be woundup only by the National Company Law Tribunal (NCLT), popularly known as the ‘Tribunal’.
→ As per Sec. 271, a company may be wound up by the Tribunal if
(a) the company has passed a special resolution of its being wound-up by the Tribunal;
(b) the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality;
(c) application made by ROC or any person authorized by the Central Govt, stating that the affairs of the company have been conducted in a fraudulent manner, unlawful purpose or the promoters and management have been guilty of fraud or misconduct in connection therewith;
(d) the company has defaulted in filing its financial statements or annual returns for immediately preceding 5 consecutive financial years; or
(e) the Tribunal is of the opinion that it is just and equitable that company should be wound up.
→ Now, the provisions regarding liquidation of companies on the ground of inability to pay their debts as well as voluntary winding-up of companies are covered under the IBC, 2016.
Question 4.
“Liquidator appointed by the Tribunal has unquestionable sole authority to deal and disburse the properties during liquidation process.” Elaborate your answer citing circumstances in which a liquidator can be removed.
Answer:
- Winding-up of a company is the process of putting an end to the life of a company. It is a process whereby assets and property of a company is realized (sold) and its liabilities are paid-off from such collections or from contributions from its members, if required.
- As per Section 270 of the Companies Act, 2013, a company registered under the Companies Act, may be wound-up only by the National Company Law Tribunal (NCLT).
- As per Section 273 of the Companies Act, 2013, the Tribunal is empowered to pass winding-up order. As per Section 275, where the Tribunal passes an order for winding-up of a company, the Tribunal shall appoint an Official Liquidator or the Company Liquidator.
- The Liquidator works under the supervision of the Winding-up Committee and shall submit regularly progress reports to the Tribunal.
- As per Section 276, the Tribunal has the power to remove Liquidator on the following grounds:
- misconduct;
- fraud or misfeasance;
- professional incompetence or failure to exercise due care and diligence;
- inability to act as provisional liquidator or as the case may be, Company Liquidator;
- conflict of interest or lack of independence during the term of his appointment.
- In the event of death, resignation or removal of provisional liquidator or Company Liquidator, the Tribunal may transfer the work to another Company Liquidator for reasons to be recorded.
- If Tribunal is of the opinion that any liquidator is responsible for causing any loss or damage to the company due to fraud or misfeasance or failure to exercise due care and diligence in the performance of his or its powers and functions, the Tribunal may recover such loss or damage from the liquidator and pass such other orders as it may think fit.
- However, prior to such removal, the Tribunal shall provide reasonable cause and reasons to be recorded in writing. Also, the Tribunal shall provide a reasonable opportunity of being heard to the Liquidator.
Question 5.
A liquidator is not a trustee but since he is in a fiduciary position in relation to any property of the company and is in the position of a trustee, he is sometimes stated as ‘statutory trustee’. Discuss the status of liquidator in compulsory winding-up by the court as well as in voluntary winding-up.
Answer:
- As per Section 270 of the Companies Act, 2013, a company registered under the Companies Act, may be wound-up only by the National Company Law Tribunal (NCLT).
- As per Section 275, where a Tribunal passes an order for winding-up of a company, the Tribunal shall appoint an Official Liquidator or the Company Liquidator.
- The Liquidator works under the supervision of the Winding-up Committee and shall submit regularly progress reports to the Tribunal.
- In a winding-up process, a liquidator is an officer of the Tribunal, and as such is required to exercise a high degree of honesty and fairness towards the creditors and members of company.
- As per Section 273, where a Tribunal orders winding-up of a company, a liquidator acts as an agent of the company. He must exercise a high degree of care and diligence in discharging his statutory duties.
He may be liable in damage to a creditor or contributory for injury caused to him as a result of his breach of statutory duties. - A liquidator is in a fiduciary position in relation to any property of the company and is in the position of a trustee, or what is sometimes stated, he is a ‘statutory trustee’.
Question 6.
Are ‘winding-up’ and ‘dissolution’ synonymous? Discuss.
Answer:
| Winding-up of a company | Dissolution of a company |
| 1. Winding-up is a first stage whereby assets are realized, liabilities are paid- off and surplus, if any is distributed. | Dissolution is the final stage whereby the existence of the company is ended by law. |
| 2. The liquidator carries out the winding-up proceedings. | The order for dissolution can be passed only by the Tribunal. |
| 3. The liquidator can represent the company during winding-up process. | Once the dissolution order is passed by the Tribunal, the liquidator no longer can represent the company. |
| 4. In winding-up process, creditors can prove their debts. | Upon dissolution of the company, the creditors cannot prove their debts. |
| 5. Every winding-up process need not result in dissolution of company. In few cases, the company may be revived. | Dissolution implies putting an end to the legal existence of a company, i.e. there is no revivalof same company. |
- The entire procedure for bringing about a lawful end to the life of a company is divided into two stages, viz. winding-up and dissolution.
- Winding-up of a company is the process whereby assets and property of a company is realized (sold) and its liabilities are paid-off from such collections or from contributions from its members, if required. But, if surplus is left, it is distributed among its members.
- Once, the winding-up process is completed, the Tribunal shall pass on order to terminate the legal existence of the company, while is known a ‘dissolution’.
Question 7.
Write a note on the list of contributories in case of compulsory winding-up.
Answer:
- Winding-up of a company is the process of putting an end to the life of a company. It is a process whereby assets and property of a company is realized (sold) and its liabilities are paid-off from such collections or from contributions from its members, if required
- Basically, a contributory is a person liable to contribute towards the assets of a company, in the event of winding-up. As per Section 272, a contributory may be a fully paid-up shareholder, including legal representatives of a deceased person
- On winding-up, a list is prepared of the contributories, is prepared by the liquidator and settled by the Court in a compulsory winding-up.
- The list consists of two parts, namely:
(a) the list of present members, i.e. those whose names appear on the register of members at the commencement of winding up, called the “A” List, and
(b) the list of past members, i.e. those who ceased to be members of the company within one year before the commencement of winding-up, called the “B” List. Past members, therefore, include persons whose shares have been forfeited, surrendered or transferred within twelve months before the commencement of winding-up, but not a person who has died.