Reconstruction and winding up of a company

Group 5 Ajay Antony Bobby John Jith Kumar Meera Nair Prescilla Chakpram Soumya Tess George

Reconstruction
y Definition

reconstruction occurs when a company transfers the whole of its undertaking and property to a new company under an arrangement by which the shareholders of the old company are entitled to receive some shares or other similar interests in the new company. A reconstruction is effected to bring about material alteration of the rights of a class of shareholders or creditors.

Steps involved in reconstruction of a company

y 1) approval of scheme by the holders of the three-fourths in the

value of the shares. y 2) Courts sanction

The court grants sanction as per the following conditions being satisfied, a) the transfer of the undertaking, property and liabilities of the transferor company to the transferee company. b) the allotment or appropriation by the transferee company of any shares, debentures, policies or other like interests in that company which are to be allocated or apportioned under the contract.

y C) the continuation by or against any transferee company of

any legal proceedings by or against any transferor company y D) the dissolution, without winding up of any transferor company y E) the provision to be made for any person who dissent from the compromise or arrangement y F) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out.

3) A certified copy of the tribunal order to be filed with the registrar within 30 days after the making of an order by the tribunal, every company in relation to which the order is made shall file a certified copy thereof with the registrar for registration. If default is made, the company, and every officer of the company who is in default shall be punishable with fine which may extend to rs. 500.

y Notice to central government

The tribunal shall give to the central government notice of every application made to it under section 391 or 394. It shall also take into consideration the representation of the central government, if any.

Winding up of companies

y Winding up or liquidation of a company represents the last

stage in its life. It means a proceeding by which a company is dissolved. The asset of the company are disposed of, the debts are paid out of the realized assets and the surplus, if any is then distributed among the members in proportion to their holdings in the company. y The two terms winding up and liquidation are used interchangeably.

MODES OF WINDING UP
Winding up by the court 2) Voluntary winding up - members voluntary winding up - creditors voluntary winding up 3)Winding up subject to supervision of court
1)

Winding up by the court/ compulsory winding up

1) 2) 3) 4) 5) 6)

Special resolution of the company Default in delivering the statutory report to the registrar or in holding statutory meetings Failure to commence or suspension of business Reduction in membership ( below 7) Inability to pay its debts Just and equitable clause a) when the substratum of a company is lost -when the company is carrying on its business at a loss - when the existing and probable assets of the company are insufficient to meet its existing liabilities - when the main objective of the company has been lost

b) When the management is carried on in such a way that the minority is disregarded or oppressed. c)Where there is a deadlock in the management of the company d)Where public interest is likely to be prejudiced e) When the company was formed to carry out fraudulent or illegal business or when the business of the company becomes illegal. f) When the company is a mere bubble and does not carry on any business or does not have any property.

Petition
y An application to the court for the winding up of a company

is made by a petition. A petition for the winding up of a company may be presented subject to the provisions of this section,
y Petition by the company y Petition by any creditor or debtor y Petition by any contributory or contributories y Petition by all or any of the prior parties whether together or

separately y Petition by registrar y Petition by the central government

Commencement of winding up
y When a resolution has been made by the company for voluntary winding

up, it is deemed to have commenced from that date. y In all other cases, the winding up is deemed to have started at the date when the petition is made to the court. y Powers of the court on hearing the petition ar as follows,
y Dismiss it y Adjourn the hearing conditionally y Make any interim order that it thinks fit y Make an order for winding up the company

Procedure of winding up by the court

y An official liquidator shall be appointed by the central

government (high court) y The official receiver shall be the official liquidator (district court) y On the winding up order being passed in respect of a company, the official liquidator shall by virtue of his office become the liquidator of the company.

Duties of liquidator
y Proceedings in winding up y Preliminary and additional reports y Custody of company's properties y Exercise and control of liquidators powers y Meetings of creditors and contributories y Directions from the court y Proper books y Audit of accounts y Appointment of committee of inspection y Pending liquidation

Powers of liquidators
1)Power exercisable with the sanction of the court
y To start or defend suits and other legal proceedings on behalf of

the company y To carry on the business of the company for its beneficial winding up y To sell the movable and immovable properties y To raise money on the security of the company y To do all incidental things for the winding up of the company

2) Powers exercisable without the sanction of the court

y To do all acts and to execute documents and deeds on behalf of

the company y To inspect the records and returns of the company or the files of the registrar without payment of any fees y To prove, rank and claim in the insolvency of any contributory for any balance. To draw, accept, make and endorse any bill of exchange y To take out in his official name, letters of administration to any deceased contributory y To appoint an agent to do any business which he is unable to himself.

3) Powers exercisable in case of onerous contracts. onerous means a right to contract such as a lease in which the obligation attaching to it exceed the advantage derived from it.

Statement of affairs
y Within 21 days of appointment of the official liquidator or

date of winding up order, the company shall submit to the official liquidator the following consisting of the following,
y Assets of the company y Debts and liabilities y Particulars of securities held by the creditors, their value and

dates. y The debts due to the company y Other information as may be required by the official liquidator

General powers of the court

1) 2) 3) 4) 5) 6) 7) 8) 9)

Stay the winding up order Settlement of list of contributories Delivery of property Exclusion of creditors Order as to costs Summoning of persons suspected of having property of the company Public examination Arrest of absconding contributory Meeting of creditors and contributories

Dissolution of company
y Dissolution puts an end to the existence of a company. A

company which has been dissolved no longer exists as a separate entity capable of holding property or being sued in the court. y Grounds for dissolution
y When the affairs of the company have been completely wound

up y When the court finds that the liquidator cannot proceed with the winding up for want of funds and assets y For any other reason

Voluntary winding up
y Voluntary winding up means winding up by the members or

creditors of a company without interferences by the court.

y By passing an ordinary resolution y By passing a special resolution Voluntary winding up starts on the date when the resolution is

passed Advertisement of winding up shall be passed within 14 days of the resolution.

y Types of voluntary winding up

y Members voluntary winding up y Creditors voluntary winding up A winding up in the case of which a declaration has been made and

delivered is referred to as a members voluntary winding up and a winding up is the case of which a declaration has not been so made and delivered is referred to as a creditors voluntary winding up.

Provisions applicable to a members voluntary winding up

y Appointment and remuneration of liquidators y Boards powers to cease on appointment of a liquidator y Powers to fill vacancy in office of liquidator y Notice of appointment of liquidator to be given to registrar y Powers of liquidator to accept shares etc y Duty of liquidator to call creditors meeting in case of insolvency y Duty to call general meeting at the end of each year y Final meeting and dissolution y Provisions as to annual and final meetings in case of insolvency

Provisions applicable to creditors voluntary winding up

y Meetings of creditors y Notice of resolution to be given to registrar y Appointment of liquidator y Appointment of committee of inspection y Liquidators remuneration y Boards powers to cease on appointment of liquidator y Power to fill vacancy in office of liquidator y Power of liquidator to accept shares as consideration for sale of

property y Duty of liquidator to call meeting at the end of each year y Final meeting and dissolution

Consequences of winding up
y Consequences to shareholders/ members y Consequences as to creditors y Consequences as to servants and officers y Consequences as to proceedings against the company y Consequences as to costs

Defunct company
y A company is said to be defunct when it is not carrying on

business or when it is not in operation. If the company ceases to carry on business, the registrar may strike it off the registrar as a defunct company. y Procedure
y Letter by the registrar to inquire if company is in operation y Registered letter if no reply received within one month y Publication in the official gazette to strike off name y Same procedure in winding up if no liquidator is acting or no

return us received.

Restoration of company's name

y Where the registrar has struck the name of a company off the

register as a defunct company, the power of the court to order the name of the company to be restored to the register lasts for 20 years. y Procedure
y Application by aggrieved member or creditor within 20 days y Restoration of name by the court on being satisfied y Directions by the court y Certified copy of order of court to be delivered to registrar.

Thank you