Voluntary Closure of Private Limited Company

INTRODUCTION:

Company Closure (Voluntary Liquidation)

A company formed or incorporated under Companies Act, 2013 or any previous law is an artificial person which has its own legal identity in front of law. A company came into its existence on the date of its incorporation i.e. date mentioned in the Incorporation certificate provided by the Registrar of Company. In other words, a company born on its date of incorporation. The closure of a company means ending the legal existence of a company in front of law. In today's competitive era, there are a lot of risks and contingencies that are faced in running a business in the form of a company and many of them face those hurdles and get a successful business. However, some businesses do not survive in such a situation and take the harsh decision of closure of the company and its business. In India, the Companies Act, 2013 and Rules, Regulation made thereunder are the major laws which governs the process of closure of a company. The Companies Act,2013 and rules, regulation made under provides following modes of the closure of a company.

• Voluntary Liquidation 
• Liquidation by ROC
• Liquidation by the Central Government.

In this blog we will discuss the first mode i.e. voluntary liquidation of the company and its procedure.

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Voluntary Liquidation:

Voluntary liquidation means a corporate person i.e. company can by itself close the business by its members. Shareholders of the company voluntarily decide to liquidate the company having its assets fulfil the debts of the company and close the business. In India, a business can easily come into existence in the form of a company voluntarily. Also we can close our company voluntarily by following the procedures of relevant laws applicable. Law which are to be adhered while voluntary liquidation or closure of a company are:

• 1.Companies Act, 2013
• 2.Insolvency and Bankruptcy Code,2016
• 3.Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulation, 2017

Voluntary Liquidation of a Company under Companies Act, 2013

Any company who wants to liquidate itself, can voluntarily initiate the voluntary liquidation process under the provisions of the Companies Act, 2013 and Rules, Regulation made under. As per Section 304 of the Companies Act, 2013, a company may be liquidated voluntarily by its shareholder by passing :

• a special resolution that company be wound up voluntarily, or
• a resolution requiring the company to be wound up voluntarily at the expiry of a fixed time, as provided in its article or on the occurrence of a specific event as provided in its article.

From the above it is clear that a company may initiate the process of voluntary liquidation itself by passing resolution in the shareholders meeting.

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Process of Voluntary Liquidation

The process of the Liquidation is a technical process, a company has to follow all the following steps during a voluntary liquidation.

1. Pass the Resolution by the Board of Director:

The first foremost step in voluntary liquidation is passing a resolution at the board meeting  for the proposal of voluntary wound up of the company before shareholders of the company for wound the company and make a declaration that :

1. the company is able to meet its debt from its assets while liquidation process,
2. the company is not being wound up to defraud its creditors, stakeholders or any person,
3. the accounts of the company are maintained in true and fair manner as per Companies Act, 2013 till date,
4. The financials of  the company are audited and valued as per the provisions of the Companies Act,2013.
5. all the applicable provisions of the law are adhered in good faith.

2. Meeting of Shareholders:

Now after passing the board resolution, the company shall conduct the shareholder meeting within five weeks in which the proposal is presented for voluntary wound up before the shareholders for their consent. In this meeting, the resolution for the proposal for voluntary wound up shall be passed in special resolution i.e. seventy five percent or more of the share shareholder of the company had given the vote in favour.

3. Meeting of Creditors:

The proposed resolution is intimated to the creditors of the company through registered speed post or other prescribed means and conduct the meeting of the creditors on the same day of shareholders meeting or next day. If the two-third of the value of the creditors of the company is of the opinion that it is in the interest of all parties that the company be wound up voluntarily, the company will be wound up voluntarily. 

*Note: The notice of meeting of the resolution passed in the creditors meeting shall be filed with the Registrar of Companies within ten days from the date of passing the resolution.

4. Publication of Resolution to winding up voluntarily:

The company shall, within fourteen days of passing the resolution for voluntary wind-up, publish in the form of advertisement in its official gazettes and one of the local newspapers of that area in which the incorporated office of the company is located.

5. Appointment of Company Liquidator:

The company shall appoint a Company Liquidator in the general meeting in which the resolution for the voluntary winding up is passed. Such appointment is only effective when the majority of the creditors have approved that appointment in the meeting.

6. Report by Company Liquidator:

The company Liquidator shall furnish the quarterly report of progress of the winding up process in such form and such manner as may be prescribed. Basically, the Company Liquidator furnishes the whole settlement report and also any detection of mischief if any found in the company.

7. Final meeting and dissolution of the Company

As soon as the affairs of the company are fully settled and wound up is completed, the Company Liquidator shall prepare the report of winding up which shows that the assets and the properties of the company are fully disposed of and all debts are paid. This general meeting is called up by the Company liquidator and if the majority of the members or shareholders is of the opinion that the above report is true and satisfying then they may pass the resolution for the company dissolution.

8. Notice to Registrar of Company and NCLT:

The Company Liquidator shall within two weeks of passing the resolution of dissolution send all required document to the Registrar of Companies and File an application before the Tribunal (National Company Law Tribunal) along with his report on winding up, books and papers of the company relating to the winding up of the company for passing an order for the dissolution of the company.

9. Order of the Tribunal:

If the Tribunal is satisfied with the reports, books and papers of the company relating to the winding up and it thinks that they are just and fair, the tribunal shall pass the order of the dissolution of the company. The Company Liquidator after obtaining the order for the dissolution from the Tribunal shall file a copy of order with the Registrar of the Company within thirty days.

10. Company Dissolution:

The company is finally dissolved on the date when the Registrar of Company in its Official Gazettes publishes a notice that the Company stands dissolved. The process of the voluntary closure of a company is completed when the Registrar of Companies publishes the notice regarding the dissolution of the company in its official gazettes. From that date the existence of the company is over in front of law and no more business transactions take place in the name of the company. As you can read above, is the simplified procedure of the company closure voluntarily however the above procedure is subject to the Companies Act,2013 and Rules, Regulation made under.

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