Members' Voluntary winding up is possible only when the company is solvent and is able to pay its
liabilities in full. Following are the important provisions regarding
members' voluntary winding up.
1. Declaration of solvency (s.488). Where it is proposed to wind up a
company voluntarily, its directors, or in case the company has more
than two directors, the majority of the directors, may at a meeting of the
Board, make a declaration verified by an affidavit, to the effect that they
have made a full enquiry into the affairs of the company and that having done
so, they have formed the opinion that the company has no debts, or that it will
be able to pay its debts in full within such period not exceeding 3 years from
the commencement of the winding up as may be specified in the declaration. In
order to be effective, this declaration must be: (i) made within five weeks
immediately preceding the date of passing of the winding up resolution by the
members; (ii) delivered to the Registrar for filing before the said date; (iii)
accompanied by a copy of the report of the auditors of the company on the profit
and loss account prepared since the date of the last account and the balance-
sheet of the company made out as on the last mentioned date
and also embodies a statement of the company's assets and liabilities as at
that date.
Any director of a company making a declaration under this
section without having reasonable grounds for the opinion that the company will
be able to pay its debts in full within the period specified in the
declaration, shall be punishable with imprisonment for a term which may extend
to six-months, or with fine upto Rs 5,000 or with both. If the company is wound
up in pursuance of a resolution passed within the period of five weeks after
making the declaration, but its debts are not paid or provided for in full
within the period specified in the declaration, it shall be presumed, until the
contrary is shown, that the director did not have reasonable grounds for his
opinion.
If the above provisions are not complied with, the winding
up shall not be a members' voluntary winding up [vosica vs. janda Rubber works AIR (1950) East Punjab 1801 and in
such case provisions (s.490 and 498) relating to members voluntary winding up
cannot apply and if liquidator is appointed in pursuance of s. 490 or 498 such
appointment would be bad in law. In such a case the provisions relating to
creditor's voluntary winding up (Ss. 500-509) should be followed and the
violation of these provisions will make the winding up proceedings void ab initio
(M. Kakshmiah v. Registrar of Companies,
Tiaandntm-unreported case decided by the Kerala High Court) and if default
is made in calling a meeting of the creditors then the company and the
director's' as the case may be, shall be punishable with fine which may extend to
Rs 1,000 and in the case of default by the company, every officer of the
company who is in default, shall be liable to the like punishment [s. 500 (6)1.
The court may, if moved by the company or its shareholders, instead of treating
the winding up proceedings as invalid, direct the company to convene the
creditors meeting [Light of Asia
lnsurance Company, I.L.R. 1940 (2) Cal.325]. The above rules will be
applicable even where a declaration of solvency has been filed but in
accordance with the provisions of s.488(2).
The company, however, may pass a fresh resolution for its
winding up the after and complying with the requirements of s.488 (Declaration of
Solvency).
2. Appointment and remuneration of
liquidators (s.490). The company in general meeting must: (a) appoint one or
more liquidators for the purpose of winding up the affairs and distributing the
assets of the company; and (b)fix the
remuneration, if any, to be paid to be liquidator or liquidators.
Any remuneration so
cannot be increased in any circumstances whatever, whether fixed with or
without the sanction of the court. No liquidator shall take charge of his office
unless his remuneration is Further, if a vacancy occurs by death, resignation
or otherwise in the office of the liquidator appointed by the company, the
company in general meeting may,
subject to any arrangement with its creditors, fill the vacancy. For this purpose a meeting may be convened
by any contributory or the continuing liquidator
or by the court on the application of any of them (s.492).
3. Board's power to cease. On the appointment of a liquidator, all the
powers of the Board of Directors and of the Managing or whole-time directors or
manager
shall cease except for purpose of giving a notice of such
appointment to the Registrar. But their powers may continue if sanctioned by
the general body or by the liquidator so far as the sanction applies (s.491).
4. Notice of appointment of liquidator
to be given to registrar (s.493) . The company must given notice to
the appointment of liquidator within 10days of his appointment .In cease of
default, the company and every office of the company (including liquidator )
who is in default, shall be publishable with fine which may extend to Rs 100 for every day during which the default
continues.
5. power of liquidator to accept shares, etc., as consideration of sale of property of the company (s.497).
The liquidator may accept shares, political or like interests in consideration
of the sale of the company’s undertaking to another company with an object to
distribute them amongst the member of transferor company, provided (a) a
special resolution is passed by the company to the effect: and (b) he purchases
the interested of any dissenting member at a price to be determined by
agreement or by arbitration.
The money to the dissenting members should be paid before
the company is dissolved and should be raised in such manner as may be
determined by special resolution.
6. Duty of liquidator to call creditor’s meeting in case of insolvency
(s.495.).If the liquidator is at any time of opinion that the company will
not be able to pay its debts in full within the period started in the
declaration of solvency, or that period has expired without the debts having
been paid in full, he must forth with summon a meeting of the creditors and
must lay before the meeting a statement of the assets and liabilities of the
company. If he fails to comply with the above requirement. He shell be
punishable with fine which may extend to Rs 500.
7. Duty of the liquidator to call
general meeting at the end of each year (s.496). in case winding up continues
for more than one year liquidator must: (a) call a general meeting of the
company at the end of the first year from the commencement of winding up and at
the end of each succeeding year, or as soon thereafter as may be convenient
within 3 month from the end of the year or such longer period as the central
government may allow; and (b) lay before the meeting an account of his acts and
dealing and of the conduct of the winding up during the preceding year.
8 . final meeting and dissolution [s.497]. as
soon as the affairs of the company are fully wound up, the liquidator must: (a)
make up an account of the winding up showing how the winding up has been
conducted and the property of the company has been deposed of; and (b) call a general meeting of the
company for the purpose of laying the account before it and given any explanation
there of.
The meeting must be called by advertisement specifying the
time, place and object of the meeting and must be published at least one month
before the meeting in the official Gazette and also in some newspaper circulating
in the district where the Registered office of the company is situated. within one week after the meeting, the liquidator must send
to the Registrar and the official Liquidator each, a copy of the account and the
return regarding holding
of the meeting. In case quorum was not present at the
meeting called, he must report accordingly.
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