Modes of Winding Up ðŠ
There are 3 modes (ways) to wind up a company under Companies Act 2013.
1. Winding Up by Tribunal (Compulsory) âïļ
Initiated by: NCLT (National Company Law Tribunal) orders.
When:
- Company unable to pay debts (insolvent).
- Company acted against sovereignty/integrity of India.
- Fraud in formation or conduct.
- Oppression of minority shareholders.
- Just and equitable for court to order.
Who Can Apply to Tribunal:
- Company itself.
- Creditors.
- Contributories (Shareholders).
- Registrar of Companies (ROC).
- Central/State Government.
Process: Court-supervised. Official Liquidator appointed by Tribunal.
2. Voluntary Winding Up ð
Initiated by: Shareholders or Creditors themselves (not court).
Types:
a) Members' Voluntary Winding Up (MVL)
- Company is solvent (can pay all debts).
- Shareholders decide to close (passed by special resolution).
- Declaration of Solvency by directors.
- Liquidator appointed by shareholders.
Example: Company completed its project (built a stadium). Now shareholders want to close and distribute money.
b) Creditors' Voluntary Winding Up (CVL)
- Company is insolvent (cannot pay debts).
- Directors cannot make Declaration of Solvency.
- Creditors have more say in appointing liquidator.
Example: Startup failed. Debts > Assets. Founders voluntarily decide to wind up instead of waiting for court.
3. Winding Up Subject to Supervision of Tribunal ðïļ
- Started as Voluntary but Tribunal supervises.
- Rarely used now.
- Purpose: Prevent fraud in voluntary winding up.
Important Update: Since IBC 2016, most insolvency cases (cannot pay debts) are handled under IBC, NOT Companies Act.
Old System (Pre-2016): Winding up by Tribunal for insolvency. New System (Post-2016): Corporate Insolvency Resolution Process (CIRP) under IBC.
Why?: IBC focuses on reviving the company first (finding a buyer, restructuring debt). Only if revival fails, then liquidation.
Companies Act winding up now used mainly for:
- Solvent companies (MVL)
- Fraud/misconduct cases
- Just and equitable grounds
Comparison Table ð
| Mode | Who Decides | Company Status | Liquidator Appointed By |
|---|---|---|---|
| Compulsory (Tribunal) | NCLT | Usually insolvent | Tribunal |
| Members' Voluntary | Shareholders | Solvent | Shareholders |
| Creditors' Voluntary | Creditors | Insolvent | Creditors + Shareholders |
Quiz Time! ðŊ
Test Your Knowledge
Question 1 of 5
1. How many modes of winding up are there under Companies Act 2013?
ðĄ Final Wisdom: "Three doors to close a company: Tribunal (forced), Members (solvent choice), Creditors (insolvent choice)!" ðŠðŠðŠ
Next up: Winding Up by Tribunal - Court-ordered closure! âïļ