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Consequences of Winding Up ðŸ’Ĩ

Once winding up order is passed (Compulsory) or resolution is passed (Voluntary), several legal consequences follow.

1. On the Company ðŸĒ

Legal Status:

  • Company continues to exist during winding up (for liquidation purpose).
  • NOT dissolved immediately.
  • But it cannot carry on business except for beneficial winding up.

Transfer of Powers:

  • Directors' powers CEASE.
  • Liquidator takes control of assets and management.

Legal Proceedings:

  • Pending suits/cases STOPPED (Need liquidator's permission to continue).
  • Company name changed: "XYZ Ltd (In Liquidation)" must be added.

2. On Shareholders ðŸ‘Ĩ

Rights:

  • Cannot transfer shares (All transfers after winding up are VOID).
  • Cannot sell or mortgage shares.
  • Voting rights continue (Can vote in meetings for winding up purposes).

Liability:

  • Contributories: Shareholders may have to pay unpaid amount on shares.
    • Example: Bought share for â‚đ10, paid â‚đ7. Must pay remaining â‚đ3 if assets insufficient.
  • Past Members: Even members who left in last 1 year can be called (for unpaid calls).

Distribution:

  • Last in priority (After all creditors).
  • Usually get nothing in insolvency cases.
  • Pari passu (Equally) among same class of shareholders.

3. On Employees/Workers 👷

Termination:

  • Employment contracts terminated (Jobs lost).
  • Subject to notice period or compensation (as per contract/law).

Priority for Dues:

  • Workmen's dues (wages, PF, gratuity) get priority over unsecured creditors.
  • Paid before general creditors but after secured creditors.

Pension/Retirement:

  • Ongoing obligations continue till settlement.

4. On Creditors 💰

Stay on Individual Actions:

  • Cannot sue company individually (All claims via liquidator).
  • Attachments VOID (Cannot grab assets individually).

Priority of Payment:

  1. Secured Creditors (Banks with collateral) - First.
  2. Workmen's Dues - Second.
  3. Government Dues (Taxes) - Third.
  4. Unsecured Creditors (Suppliers) - Fourth.

Proof of Debt:

  • Must submit proof of claim to liquidator.
  • Liquidator verifies and admits claims.
Floating Charge vs Fixed Charge

Fixed Charge: Specific asset as security (e.g., Mortgage on building). Floating Charge: Pool of changing assets as security (e.g., Stock/inventory).

Priority Rule: Workmen's dues get priority over floating charge (not over fixed charge).

Reason: Protect workers. They worked to create the stock/inventory!

5. On Directors 🏃

Loss of Powers:

  • No longer control company.
  • Cannot make decisions (Liquidator decides).

Personal Liability:

  • May be liable if fraud/misfeasance proven.
  • Disqualified from being director in other companies (if involved in non-filing for 3 years).

Duty to Cooperate:

  • Must assist liquidator (provide books, documents, information).
  • Penalty for non-cooperation: Fine + Imprisonment.

Quiz Time! ðŸŽŊ

Test Your Knowledge

Question 1 of 5

1. After winding up order, can shareholders transfer shares?

Yes, freely
No (Transfers are VOID)
Yes, with permission
Only to family

ðŸ’Ą Final Wisdom: "Winding up reshuffles the deck. Company loses freedom, directors lose power, employees lose jobs, creditors fight for scraps, and shareholders... usually lose everything!" ðŸ’ļ

Next up: Removal from Register - The final death! ðŸŠĶ

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