20 April 2022
What is Winding-up?
Winding up is a process whereby the operations of the company are brought to an end and the the assets are collected and realised; and applied in payment of its debts; and when these are satisfied, the remaining amount is applied for returning to its members the sums which they have contributed to the company in accordance with Articles of the Company.
Process for Voluntary Winding Up:
The winding up process under the earlier provisions requires:
● the Company to make a winding up petition before the NCLT in Form WIN-1 or form WIN-2. Such petition shall be verified by an affidavit made by the petitioner in Form WIN-3. Three copies of the petition have to be presented to the tribunal.
● The statement of affairs shall be in Form WIN 4 and shall contain information updated shall less than 30 days prior to the date of filing the petition.
● Along with the statement of affairs, an affidavit of the concurrence of the statement of affairs has to be filed in Form WIN 5.
● After filing the petition for winding up, it shall be posted before the Tribunal for its admission, upon which a date for the hearing of petition shall be fixed.
● Upon hearing of the petition, the Tribunal will give appropriate directions for the advertisement of winding up to be published. The petitioner shall bear all the costs involved in the advertisement of winding up the company.
● A copy of the petition for winding up the company has to be served to every contributory of the company. This copy of the petition has to be furnished within 24 hours of the notice for the same
● Within 14 days of receiving the date of hearing of the petition, the notice of the petition shall be advertised in an English Newspaper and a vernacular language (local) newspaper, which is broadly circulated in the State/UT where the registered office of the company is located.
Fast Track Model for Startups
But now, the process has been made much simpler and faster.
To enable faster exit for start-ups and to bring the winding up process in line with global best practices, the Department of Industrial Policy and Promotion (DIPP) has written to the Ministry of Corporate Affairs (MCA) to notify start-ups as ‘Fast Track firms.’
Start-ups shall be able to wind up their business within a period of 90 days from making an application for the same.
As per the Insolvency and Bankruptcy Code, 2016, startups with simple debt structures, can be wound up in 90 days of filing the application for insolvency. An insolvency professional can be appointed for the Startup who can be in charge of the company including liquidation of its assets and paying its creditors within six months of such appointment. Upon appointment of the insolvency professional, the liquidator shall be responsible for the swift closure of the business, sale of assets and repayment of creditors in accordance with the distribution waterfall set out in the IBC.
The long process, paperwork and costs involved in the closure are the main reasons why several companies remain dormant. In some instances, entrepreneurs may continue to run companies on paper, filing tax returns and preparing annual reports every year, even if it is no longer operational. However, due to this fast track winding-up introduced by the DIPP, the long and cumbersome process has come to an end. The Start-ups may now avail the benefit of winding up the company in a more efficient manner and shorter duration.
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