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Unit 14: Winding Up of Companies
Notes
Task Randhir and Vipin formed a private company in which they were the only directors
and shareholders having equal voting rights. Differences arose between them. They were
not even on speaking terms. One of them filed a petition for winding up. Will he succeed
in getting winding up order? [Hint: He will succeed; there being a deadlock in management.
Such a ground will fall under ‘just and equitable’ clause of winding up.]
14.6 Voluntary Winding Up
Winding up by the creditors or members without any intervention of the court is called ‘voluntary
winding up’. In voluntary winding up, the company and its creditors are left to settle their
affairs without going to the court for directions or orders if and when necessary. Winding up
should not be confused with insolvency. Company may be solvent and running a prosperous
business yet it may decide to be wound up voluntarily, e.g., in pursuance of a scheme of
reconstruction or amalgamation.
A company may be wound up voluntarily: (1) if the company in general meeting passes an
ordinary resolution for voluntary winding up where the period fixed by the Articles for the
duration of the company has expired or the event has occurred on which under the Articles the
company is to be dissolved; (2) if the company resolves by special resolution that it shall be
wound up voluntarily (s.484).
When a company has passed a resolution for voluntary winding up, it must within 14 days of the
passing of the resolution, give notice of the resolution by advertisement in official gazette and
also in some newspaper circulating in the district where the registered office of the company is
situated. In case of default, the company and every officer of the company who is in default shall
be punishable with fine which may extend up to 500 for every day during which the default
continues (s.485).
14.6.1 Consequences of Voluntary Winding Up
The consequences of voluntary winding up are as follows:
1. A voluntary winding up is deemed to commence at the time when the resolution for
voluntary winding up is passed (s.486). This will be so even when after passing a resolution
for voluntary winding up, a petition is presented for winding up by the court (s.441).
2. The company, from the commencement of winding up, must cease to carry on its business
except so far as may be required to secure a beneficial winding up, although the corporate
state and powers of the company continue until final dissolution (s.487).
3. All transfer of shares and alterations in the status of members, made after the
commencement, are void unless sanctioned by the liquidator (s.536).
4. A resolution to wind up voluntarily operates as notice of discharge to the employees of
the company [Fowler vs. Commercial Times Co.] except: (a) when the liquidation is only
with a view to ‘reconstruction’ [Midland Counties Bank Ltd. vs. Attwood (1905) 1 Ch. 357]
or (b) when business is continued by the liquidator for the beneficial winding up of the
company.
5. On the appointment of the liquidator, all the powers of the Board of directors, managing
director or ‘manager’ shall cease except (s.491): (a) for the purpose of giving notice to the
Registrar about the name of the liquidator appointed, or (b) insofar as the company in
general meeting or the liquidator may sanction the continuance of their powers.
LOVELY PROFESSIONAL UNIVERSITY 227
