Winding Up

Winding up is the legal process of closing down a company by realising its assets, settling its debts and liabilities, and distributing any surplus to members, after which the company is formally dissolved and ceases to exist. In India it is governed by Chapter XX (Sections 270-365) of the Companies Act 2013 and, since 2016, largely by the Insolvency and Bankruptcy Code (IBC). It is the corporate equivalent of insolvency for individuals, though a company can also be wound up while solvent.

Modes of winding up

• By the Tribunal (compulsory): Ordered by the NCLT under Section 271 of the Companies Act 2013 on non-financial grounds, such as a special resolution to be wound up by the Tribunal, conduct against the sovereignty and integrity of India, fraudulent affairs, default in filing financial statements or annual returns for five consecutive years, or where the Tribunal considers it just and equitable.
• Voluntary liquidation: For a solvent company that has not defaulted, initiated by shareholders/creditors under Section 59 of the IBC 2016 and regulated by the IBBI.
• Insolvency liquidation: Of an insolvent company under Sections 33-54 of the IBC, ordered by the NCLT after a failed corporate insolvency resolution process (CIRP).

The old "inability to pay debts" ground and voluntary winding up (former Sections 304-323) were omitted from the Companies Act and shifted to the IBC.

How it works

A Company Liquidator or insolvency professional takes custody of the assets, verifies claims, realises the assets, and pays creditors in the statutory order of priority (the Section 53 IBC waterfall). After distribution, the liquidator files a final report; the NCLT passes a dissolution order, which is filed with the Registrar of Companies, who strikes the company's name off the register.