Creditors’ Voluntary Winding Up
Creditors voluntary winding up takes place only when the company is in an insolvent condition and so it is unable to discharge its liabilities in full.
It is already stated that in a members’ voluntary winding up, the directors should make a Declaration of Solvency before 5 weeks from the date of the General Meeting in which a resolution to the effect is to be passed.
If they are unable to make a Declaration of Solvency within the time, the winding up shall be a creditors’ voluntary winding up and the winding up proceedings should be conducted according to the provisions laid down for that purpose.
Procedure for Creditors’ Voluntary Winding Up
The Companies Act lays down the following procedure for Creditors’ voluntary winding up.
1. Holding of the Meeting of the Members and Creditors
A meeting of the members should be held and a special resolution to wind up should be passed in the meeting. A meeting of the creditors should also be conducted either on the same day fixed for the General Meeting or on the next day of the General Meeting.
2. Provisions Regarding the Creditors’ Meeting
The following procedure should be followed regarding the creditors’ meeting.
1. The notice of the meeting should be sent by post to each creditor simultaneously with the sending of the notice for the general meeting.
2. It should also be published in the Official Gazette and in two newspapers circulating in the district in which the Registered Office is situated.
3. A Statement of Affairs and a list of creditors and the amount due to them should be prepared and placed at the meeting of the creditors.
4. If any resolution is passed in the creditors’ meeting, a copy of the resolution should be filed with the Registrar within 10 days from the date of passing the resolution.
3. Appointment of Liquidators
The members and the creditors at their respective meetings should appoint one or more Liquidators. If they appoint the same person or persons as Liquidators, no complication will arise. If they appoint different persons, the person nominated by the creditors alone is entitled to act as the Liquidator. If no Liquidator is appointed by the creditors in their meeting, the person appointed by the members shall be the Liquidator and vice versa.
4. Appointment of the Committee of Inspection
The creditors may appoint a Committee of Inspection at their meeting. The Committee may consist of a maximum of 6 members. The members can also appoint 5 more members to the Committee appointed by the creditors. If the creditors want that the members appointed by the shareholders should not act as the members of the Committee of Inspection, their nominees cannot act as such.
5. Remuneration to Liquidator
The remuneration to the Liquidator can be fixed by the Committee of Inspection. If no such committee is appointed or the committee does not fix his remuneration, creditors can fix the remuneration.
If his remuneration is not fixed either by the committee or by the creditors, the National Company Law Tribunal shall fix the remuneration. The remuneration once fixed cannot be increased with the permission of the National Company Law Tribunal.
6. Board’s Powers to Cease on Appointment of Liquidator
All the powers of the Board of directors shall ceases on the appointment of a liquidator. But the committee of inspection, or if there is no such committee, the creditors may sanction the continuance of the Board, in general meeting.
7. Power to fill Vacancy in Office of Liquidator
If a vacancy occurs by death, resignation or otherwise, in the office of a liquidator (other than a liquidator appointed by, or by the direction of, the National Company Law Tribunal), the creditors in general meeting may fill the vacancy.
8. Winding up Proceedings conducted by the Liquidator
Winding up proceedings in creditors’ voluntary winding up are similar to that of a members’ voluntary winding up, however, subject to certain exceptions. The procedure for winding up is as follows:
1. If the winding up process continues for more than one year, the Liquidator must call for a meeting of the creditors as well as a meeting of the members at the end of the first year.
2. Meetings should also be called for at the end of each subsequent years, if the process of winding up continues for more than one year.
3. A statement in the prescribed form with prescribed particulars must be submitted to the meetings. The Liquidator must also place account of his acts and dealings before the meetings.
9. Final Meetings and Dissolution
The following are the provisions of the Act regarding the final meetings and dissolution.
1. As soon as the affairs of the company are fully wound up, the Liquidator should prepare the accounts of winding up. The accounts should show how the winding up has been conducted and how the property of the company has been disposed of.
2. The Liquidator should then call for a meeting of the members and also the creditors. Each of the meetings should be called by an advertisement in the Official Gazette and in the newspaper.
3. The Liquidator should submit the statement of affairs in each of the meetings.
4. Within a week after the date of the meetings, the Liquidator should send a copy of the accounts along with a return to each of the meeting to the Registrar and official liquidator.
5. If a quorum (i.e. two persons) is not present at either of such meetings, the liquidator shall, make a return that the meeting was duly called and that no quorum was instead of the return specified in point 3 above present thereat.
6. The Registrar, on receipt of the account as well as the return mentioned in point 3 above or the return mentioned in point 4 above, shall register them immediately.
7. A similar copy should be sent to the Official Liquidator, and the Official Liquidator should submit a report thereon to the National Company Law Tribunal. The follow up proceedings are similar to the members’ voluntary winding up.