Winding Up of a Company

Joint Stock Company is one of the business types in which a voluntary association of different persons created by law as a separate body for specific purposes. It possesses a common capital contributed by its members such capital being divided into transferable shares. The liability of each such member is limited to the face value of the shares he holds.

It is formed and controlled under the Company Ordinance or of the State. It is managed by the group of persons known as Board of Directors. This form of organization is very popular in the field of large scale production and distribution due to its greater benefits.

Compulsory Winding up of the Joint Stock Company

1. Special Resolution

A Joint stock company may be wound up by the court if a special resolution is passed for this Purpose.

2. Failure to Commence Business

When the company does not commence business within a year from its incorporation or suspends business for a year.

3. Statutory Report or Meeting

Where default is made in submitting the statutory report to the registrar’s office or in holding the statutory meeting within prescribed time or any two consecutive annual general meetings under section 305 (b) in company ordinance 1984.

4. Reduction in Number of Members

Where the number of members of public company is reduced below seven or in case of private company below two.

5. Inability to Pay its Debts

Where the company is unable to pay its debts in the following situation. 

If a creditor whose debt exceeds. USD.50,000 or one percent of its paid up capital which ever is less under section 306 (a) Has served notice requiring payment and is not paid within 30 days.

If execution in favour of creditor remains unsatisfied or

If the court is fully satisfied that the company is quite unable to pay its debts.

6. Court’s Decision

When the court is of the opinion that it is just and equitable that the company should be wound up due to its mismanagement, dead-lock, fraudulent or any other reasonable grounds.

The Circumstances of Such Winding Up

Expiry of Fixed Period

Where the period is fixed for the duration of the company by the Articles, it. may be winding up on the expiry of period. But the company has to pass ordinary resolution in general meeting to wind up.

Happening of Event

A company may be wound up on the happening of event on which (under the Articles) the company is to be dissolved.

Special Resolution

A company may be wound up voluntarily if the company passes special resolution for this purpose.

Heavy Liabilities

A company may be wound up if the company passes extra-ordinary resolution that it cannot continue its business due to its heavy liabilities.

Winding up of a Joint Stock Company Under Supervision of Court

1. Resolution

At first the company has to pass special or extra ordinary resolution to wind up voluntarily.

2. Petition for Subject to Supervision

When there are frauds or irregularities in the voluntary winding up, the petition may be presented by one or more of the competent parties for winding up under the supervision of the court.

3. Supervision Order

The court may, if it thinks fit, order that the voluntary winding up shall continue but subject to the supervision of the court and on such terms and conditions as the court thinks just.

4. Power of the Court

The court has power to appoint an additional liquidator of to remove any liquidator. But generally the liquidator appointed by the company for the voluntary winding up continues in office subject to his giving of security.

5. Dissolution of the Company

When the supervision order made, the liquidator may exercise all his powers in a voluntary winding up. On completion of the winding up, the court will make an order that the company is dissolved.

Procedure in Member’s Voluntary Winding Up

To bring about a member’s voluntary winding up the following conditions must be satisfied.

1. Statutory Declaration

The majority of directors make a statutory declaration of solvency for submission to registrar intimating him that having made full inquiry into the company’s affairs, they of the opinion that the company will be able to pay its debts in full within three years from the commencement f the winding up,

2. Special / Ordinary Resolution

After the declaration of solvency has been submitted to registrar , the company in general meeting passes the ordinary or special resolution as the case may be for the winding up of the company.

3. Appointment of Liquidator

The company in general meeting appoints a liquidator to wind up the company’s affairs and distribute its assets. The remuneration of liquidator may be fixed in this meeting. On the appointment of liquidator, all the powers of directors and other officers end except so far as the company in its general meting or the liquidator himself sanctions their continuance. Within ten days after the appointment of liquidator, the notice regarding the appointment must be sent to registrar.

4. Final Process of Winding Up

If the winding up continues for more than one year, the liquidator has to call general meeting of the company at the end of each year. When the company’s affairs are fully wound up, he has to call final meeting of the shareholders. At this meeting the liquidator must submit a final account of the company’s affairs to the members. Within one week after the final meeting, the liquidator must file with registrar a copy of the accounts and a return of the holding of the meeting. At the end of three months from the date of registration of return, the company is dissolved and its name is struck off the Register of Joint Stock Companies.

Creditors Voluntary Winding Up

The procedure for a creditor’s voluntary winding up is follows:

1. Solvency Declaration

Statutory declaration regarding solvency of the company is not necessary in case of creditor’s voluntary winding up.

2. General Meeting

A general meeting of the company will be called for the purpose of passing extra-ordinary resolution. This resolution is required for the winding up of the company because it cannot continue its business because of its liabilities.

3. Creditor’s Meeting

The company must call a meeting of the creditors on the same day or on the following day after the general meeting of the company. A notice must be sent in writing to each creditor for this purpose.

4. Statement of Company’s Position

The directors of the company must lay before the creditors a full statement of company’s position, a list of creditors and their estimated claims. A director of the company, appointed by other directors must preside the creditor’s meeting.

5. Intimation to Registrar

The information regarding the notice of resolution passed must be sent to registrar within ten days from the date of creditor’s meeting.

6. Appointment of Liquidator

The creditors and the company at their respective meeting may nominate a person to act as liquidator. If different persons are nominated by creditors and company respectively, the opinion of the creditors shall hold good.

7. Committee of Inspection

The creditors and the members at their respective meeting may appoint a committee of inspection consisting of five persons in each committee.

8. Liquidator’s Powers and Duties

The liquidator may exercise his power for the winding up of the company with the sanction of the committee of inspection or in the absence of such committee, with the creditors.

9. Liquidator’s Remuneration

The liquidator’s remuneration is fixed by the committee of inspection or, if there is no such committee, by the creditors

10. After the Expiry of One Year

If winding up continues for more than one year, the liquidator must. call the meeting of .creditors and members at the end of each year. He must lay before the meeting an account of his acts for the winding up during the preceding year.

11. At the End of Winding Up

On completion of the winding up, the liquidators have to cal final general meeting of the members and a meeting of creditors. The notice for these meetings must publish in the gazette and news papers at least ten days before the meeting.

The liquidator has to lay his reports regarding the accounts and assets of the company before the meeting. Within one week after the date of the meeting, the liquidator must submit to Registrar a copy of his accounts and a return of the holding of such meeting.

12. Dissolution of the company

At the end of three months from the date of registration return the company is dissolved and it ceases its legal entity.

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