An Overview of Companies (Winding Up) Rules 2020 Notified By MCA

This article studies the procedure laid down under the Companies (Winding Up) Rules, 2020 for winding up of company during the Covid-19 Pandemic situation. This article also discusses the requirements to be fulfilled according to the Companies (Winding Up) Rules, 2020.
Estimated Reading Time: 9 minutes

Introduction

The winding up or liquidation of a company is the process by which a company’s assets are collected and sold in order to pay its debts. When the winding up has been completed, the company is formally dissolved, and it ceases to exist.

During the process of liquidation/winding up the life of that company comes to an end and the property and assets are disposed of to its creditors and members. An administrator has been appointed who is also known as liquidator, he helps in dissolving the company by taking control of the company so that he can pay off all the debts of the company and at the end distributes the surplus amount to the members in accordance with the rights mentioned in the act.

Companies (Winding Up) Rules, 2020

The Ministry of corporate affairs has given notification under the circular which describes the process of winding up of the company. The notification was given on 24 January 2020 under which the Companies (Winding Up) Rules, 2020 (‘The Rules’). Those rules are applicable to those companies which are going through winding up under Section 271 of the act. Also, applies to those companies which are going through liquidation process under section 361 of the act which is known as “Summary procedure for liquidation”. The rules will come into the effect from April 1, 2020 and they consist Rule 1 to Rule 191 under the Forms WIN1 to WIN 95, which will deal with winding up of the company under Companies Act, 2020. The Rules comprise of 191 rules and 95 forms shall also become applicable from 1st April 2020.

Another relief was provided by the Central Government that the companies who are willing to go under winding up process can directly file an application to the Central Government without necessarily go to the National Company Law Tribunal.

Difference between Dissolution & Winding up of a Company:

Winding up of the company is the method to bring dissolution after it and Dissolution is the end result of the winding up. The existence or the legal entity remains as it is at the time of winding up of the company but at the time of dissolution the legal entity of the company comes to an end.

Modes of Winding Up of a Company under Companies Act, 2013

There are two ways in which the company can be wind up which is mentioned below:

  1. Compulsory Winding Up of a Company: When the winding up of the company is done by the order of a tribunal then it is known as compulsory winding up.
  2. Liquidation under Insolvency and Bankruptcy Code 2016: When the company winds up their company on their own will under The Insolvency and Bankruptcy Code, 2016 which relates to insolvency resolution plans, re-organisation in a given time frame.

Some provisions are given by the Central Government to provide for winding up of the company which I to be followed by the companies in current times. There is a major advantage given that for going for winding up there is no need to be necessarily present in front of NCLT for this process

Summary Procedure for the purpose of Winding up of Companies in 2020

Conditions for Summary Winding Up

A company who wants to undergo in the process of winding up to liquidations must follow these conditions:

  • The assets of the company under the book value does not exceed Rs. 1 crore.
  • The company who takes deposits must have a limit to the outstanding deposits which must not exceed Rs. 25 Lakh
  • The company who undergoes winding up or liquidation process they must not have more than Rs. 50 Lakhs as the total outstanding loan. 
  • The turnover of the company must be up to Rs. 50 Crore.
  • The company who undergoes winding up and liquidation must not have more than Rs. 1 crore as its paid-up share capital.

Appointment of an Official Liquidator

After fulfilling all the conditions, the Central Government appoints an official liquidator for the purpose to seek winding up by him under the summary procedure for liquidation.

Procedure for Summary Liquidation under winding up of the company

  • Sale of assets and properties: The Official Liquidator who is appointed by Central Government shall dispose of all the assets and properties of the company after receiving approval from the Central Government. Each and every sale has to be made with the prior approval of the Central Government. Any expense incurred under the process of liquidation have to be paid by the liquidator only from the gross sale proceeds. As given under section 349 of the act if any monies are obtained by the official liquidator then it must be going into the account of RBI on that working day only.  
  • Payments to creditors: When the official liquidator has been appointed then from the date of his appointment within 30 days, he must call upon the creditors to prove their claims against the company. There is responsibility of the creditors also that they must do claims within 30 days from the date of receipt. This is the responsibility of the liquidator to lodge a proof of debt by the creditors and the official liquidator has to file a list of creditors with Central Government in the given time frame. At last liquidator will pay all the dues of the creditors.

Powers of the Official Liquidator

After the appointment of official liquidator, he will take the custody of all the assets and properties. Also, he will take responsibility of all the amount due to the company and by the company. With a purpose of executing sale of the assets and properties of the company. The official liquidator has one more power to appoint an agent or auctioneer which have to be approved by the Central Government.

Duties of the Official Liquidator

The official liquidator is duty bound to investigate all the affairs of the company and submit the report for the same to Central Government in the given prescribed manner. It must reveal all the details of the company, if any fraud has been committed by the company in the process of formation, promotion or in managing the affairs of the company then it must be intimidated to the Central Government through report. The report should show the true review of the company if no fraud has been committed by the company or its members then that should also be intimidated to the Central Government and in case of fraud if Central Government is also satisfied with such report then they can call upon further investigation in the prescribed time frame.

Winding-up Order

After all the requirements of winding up has been done it means when the report is submitted, and Central Government approve the winding up of the company then it shall commence in the manner as a company is wind up by the tribunal.

 Other rules:

The rules of Companies (Winding-Up) Rules, 2020 also provide rules to file for petition by the following:-

  • Company
  • any contributory
  • the Registrar
  • any person authorized by the Central Government to file for petition on their behalf
  • Central or State Government in those cases where the company has acted upon the sovereignty, integrity of the country or the security, or foreign relation of the country or on public order morality, decency  but they will not be limited to the following mentioned below:
  1. Winding up of the company by tribunal
  2. Any appointment made of any Provisional Liquidators
  3. Any Appointment done of the official or Company Liquidator
  4. Order of Winding-up
  5. Any application for stay of any suit
  6. Any report given under section 281 by the company liquidator
  7. List of those contributors who has been settled
  8. Any Advisory Committee
  9. Meetings done between Creditors and Contributories
  10. Any proxies of the meetings of creditors and contributories
  11. In the case where registration of books and accounts to be maintained by the Company liquidators.
  12. Account of a Company Liquidator
  13. Investment of any surplus funds
  14. Audit of company liquidator
  15. Distribution of assets by the tribunal at the time of winding up
  16. Examine the directors and members
  17. Summons against any person who is suspected to have property of a company
  18. Any application filed against directors, promoters , members, or officers of the company
  19. Compromise done of any claim
  20. Sale of assets or proprieties by the Company Liquidator
  21. Amount of dividend and return of capitals during the winding up by the tribunal
  22. When winding up get terminated
  23. When the payment has been made of any unclaimed dividend or any summary procedure done.

Illustration

A firm say “CD” regularly supplies some of the raw materials to a partnership firm say “IN” for carrying out their business of manufacturing of refrigerators. After supplying raw materials to “IN” successfully for 7 months and after that “IN” fails to clear the outstanding dues and money of the “CD” with the interest accrue upon that amount and it totals to be Rs. 2,87,000/-  

A sole proprietorship say “PB” has given his truck on rent to a company called “LM” for loading of their goods and transporting the same but after some time “PB” failed to rent the truck to “LM” even after repeated demand. Then he has a duet of Rs. 3,98,000/- with interest accrue. 

In both of the cases, CD and PB are advised to initiate their winding up process so that the creditors can take money from them which is due to them.

Winding Up/ Liquidation Process under the Companies Act, 2013 in relation to Insolvency and Bankruptcy Code, 2016

  1. Demand notice is to be issued by the operational creditors to deliver a demand notice under Form A Rule 5
  2. After filing of demand notice the debtor has to bring up to the notice of operational creditor of the amount which is disputed within 10 days.
  3. Even after expiry of 10 days if operational creditors do not get their payment then they can file under Section 9 of the IBC code in the prescribed form-5 and Rule no. 6 before the NCLT to initiate CIRP with one more proposal which is to appoint of Interim Resolution Professional.
  4. After 14 days from the receipt of the application filed by operational creditors, NCLT has to pass an order that either they reject or accept the application.
  5. If NCLT accept the application of operational creditors, then NCLT must appoint Resolution Professional within 7 days then the committee of creditors by majority has to confirm their interim resolution professional by the name “Resolution professional”.
  6. Then the resolution professional has to prepare a plan under Section 25(2)(h) of the code.
  7. Then by resolution plan has to be approved by majority of creditor of committee.
  8. Then after approval of resolution plan by COC it has to be approved by NCLT , they can either reject it or approve it which shall be binding on debtors, creditors, and other interested parties.
  9. Liquidation Process:
  10. no resolution plan is presented for approval within the time period prescribed for completion of CIRP, or
  11. if the resolution plan is rejected by NCLT, or
  12. if the COC recommends liquidation of debtor, or
  13. if the Corporation debtor contravenes the resolution plan, or
  14. its mandatory for NCLT to order liquidation of the debtor (Under Chapter III of the Code – Section 33).
  15. After approval of resolution plan liquidator has to be appointed for the process of liquidation.
  16. The assets are to be distributed by official liquidator to the creditors and then surplus is to be distributed to the members of the company.
  17. NCLT by acting upon the application given by the liquidator shall approve and order liquidation process.

Conclusion

Basically, the Companies (Winding Up) Rules, 2020 give a several ways for winding up of the company which can be done by tribunal, liquidators, winding up by order, or any application for stay of suits on winding up order, there are provisions to the report given by the Company Liquidator under Section 281.

There are numerous facilities given under winding up which are settlement of list of the contributors, of Advisory Committee and the meetings of creditors and contributors and their proxies which is also under the winding up process.

Then the Registration and book of account need  to be maintained by the companies liquidators, investments of surplus funds, filing and audit of Company Liquidator’s account, winding up by tribunal debts and claims against the company other than summary winding up; attendance and appearance of the creditors and contributories, collection and distribution of assets, calls in winding up by the tribunal,  examination under Section 299 and 300, application against the directors or promoters or officers, compromise of claims, sale by company liquidators, dividends and returns of capital in winding up by the tribunal, termination of winding up; payments of unclaimed dividends and the summary procedure for liquidation.

The Companies (Winding Up) Rules, 2020 elaborate on the procedure in which the winding up of a company can be commenced in the times of Covid-19.

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