The term ‘winding up’ of a company may be defined as the proceedings by which a company is dissolved (i.e. the life of a company is put to an end). Thus, the winding up is the process of putting an end to the life of the company. And during this process, the assets of the company are disposed of, the debts of the company are paid off out of the realized assets or from the contributors and if any surplus is left, it is distributed among the members in proportion to their shareholding in the company.
There are three ways to windup the company.
Easy Exit Scheme:
—(1) A company which ceases to operate and and has no known assets and liabilities, may apply to the registrar in the specified manner, seeking to strike its name off the register of companies on payment of such fee mentioned in the Seventh Schedule.
(2) After examination of the application, the registrar on being satisfied, may publish a notice in terms of sub-section (3) of section 425 of this Act, in the Official Gazette stating that at the expiration of ninety days from the
date of that notice, unless cause is shown to the contrary, the name of the applicant company will be struck off the register of companies and the company will be dissolved. Such notice shall also be posted on the Commission‘s website.
(3) At the expiration of the time mentioned in the notice, the registrar may, unless any objection to the contrary is received by him, strike its name off the register, and shall publish a notice thereof in the official Gazette, and, on the
publication of such notice, the company shall stand dissolved:
Provided that the liability criminal, civil or otherwise (if any) of every director, officer and member of the company shall continue and may be enforced as if the company had not been dissolved.
More than 30,000 companies closed their operations and wind up the companies in Pakistan since 1971.
Documents Required to Wind-up the Company
A person appointed to carry out the winding up of a company is called liquidator. If the winding up is through Court, the term used for such person is official liquidator. The duties of liquidator include to get in and realize the property of the company, to pay its debts, and to distribute the surplus (if any) among the members. The official liquidator acts under the supervision of the Court, through a recognized reporting system.
The following are the general powers of liquidator(s):-
1. To institute or defend any suit, action, prosecution or other legal proceeding, civil or criminal on behalf of the company.
2. To carry on the business of the company so far as may be necessary for the beneficial to it.
3. To pay to the creditors.
4. To make any compromise or arrangement with creditors.
5. To compromise all calls and liabilities to calls, debts and liabilities capable of resulting in debts.
6. To sell the movable and immovable property and things in action of the company by public auction or private contract, with power to transfer to any person or to sell the same in parcels.
7. To do all acts and to execute all deeds, receipts and other documents in the name and on behalf of the company and for that purpose to use in the company’s seal when necessary.
8. To prove, rank and claim in the bankruptcy, insolvency or sequestration of any contributory for any balance against his estate and to receive dividends as a separate debt due from the bankrupt or insolvent in the bankruptcy.
9. To draw, accept, make and endorse any bill of exchange or promissory note in the name and on behalf of the company.
10. To raise on the security of the assets of the company any money.
Consequences of winding up
Some important consequences of winding up of company are:
2.1 As regards the company itself: winding up does not mean that the company has ceased to exist. The company exists as a corporate entity with all the rights of such entity, with only change that its management and administration is to be carried on through liquidator / liquidators till the final
dissolution of the company.
2.2 As regards the shareholders: A new statutory liability as contributors comes into existence. Every transfer of shares or alteration in the status of a shareholder, after the winding up has commenced by the order of the Court , shall unless approved by the liquidator , be void.
2.3 As regards the creditors:
i. They cannot file or continue suits against the company, except with the leave of the Court.
ii. They cannot proceed with the execution, if they have obtained decrees already.
iii. They must lodge their claim and prove their debt before the liquidator.
2.4 As regards the management, on appointment of liquidator, all the powers of the directors, chief executive and other officers, shall cease, except for the purpose of giving notice of resolution to wind up and appointment of liquidator and filing of consent of liquidator etc.
2.5 As regards the disposition of company’s property, all such dispositions are void unless with the leave of the Court or the liquidator.
Following companies are not eligible to wind-up the Company: