Name : Muhammad Islam

Roll No: 200918

Department: Shariah & Law

Semester: 8th

Assignment: 02

Topic: Winding up of Company

Submitted to: Sir Iftikhar Ahmad Khan

Date: 28-May-2024
Meaning

 Last stage in the life of the company

 Legal process whereby, all the activities and existence of the company
come to an end.
 Assets are disposed off, the debts are settled out of the realized assets or
from the contribution from members and surplus if any, is distributed to
their shareholding Winding Up Meaning

Explanation

The winding up of a company means the process by which a company is

dissolved. A company is created by a legal procedure and it comes to an end
by a legal procedure. Winding up is the process by which the management of
the company is taken from the directors, assets are sold, debts are paid off
and the remaining balance is divided among members. The winding up of a
company is also called liquidation.

Definition

Prof. Gower

“a process whereby its life is ended and its property administered for the
benefit of its creditors and members. An administrator, called liquidator is
appointed to takes control of the company, collects its assets, pays its debts
and finally distributes any surplus among the members in accordance with
their rights.”

Liquidator

A person appointed to carry out the winding up of a company is called a

liquidator. A liquidator has to sell the property of the company, pay its debts
and distribute the surplus among members. The following are powers of a
liquidator: [Sec. 337]

 To carry on the business of the company if it is necessary for winding up of

the company.
 To do all acts and execute all deeds, receipts and other documents in the
name of the company.
 To sell the movable and immovable property of the company by public
auction or private contract.
  To sell the whole business of the company.
 To file or defend any suit or legal proceeding on behalf of the company.
 To settle claims of creditors, employees or other claimants and distribute
sale proceeds.
 To draw, accept, make and endorse any negotiable instruments in the
name of the company.
 To obtain professional assistance from any person or appoint any
professional for protection of the assets of the company and appoint an
agent to do any business which the liquidator is unable to do himself.
 To appoint an advocate to appear before the Court or such person to
assist him in performing his duties.
 To take such steps or sign, execute and verify any paper, deed, document,
application, petition, affidavit, bond or instrument as may be necessary: a.
To wind up the company.

Contributory
A contributory means a person liable to contribute to the assets of a company
at the time of winding up. A person holding fully paid-up shares in a company
is a contributory but has no liability of a contributory. The liability of a
contributory is a debt due from him to the company. The following persons are
liable to contribute: [Sec. 296,297]

1. Present and Past Members

 In case of winding up, every present and past member shall be liable to
contribute to the assets of the company for payment of debts and liabilities
and costs, charges and expenses of winding up. The following rules apply:
[Sec. 294] a. A past member shall not be liable if he ceased to be a
member for 1 year or more before the commencement of winding up.
 A past member shall not be liable for any debt or liability of the company
contracted after he ceased to be a member.
 A past member shall not be liable unless it appears to the Court that
present members are unable to satisfy the contributions.
 In a company limited by shares, no contribution shall be required from any
past or present member exceeding the amount unpaid on the shares held
by him
  In a company limited by guarantee, no contribution shall be required from
any past or present member exceeding the amount undertaken to be
contributed to the assets of the company at the time of winding up.
 A sum due to any member as dividends or profits shall not be considered a
debt of the company in case of competition between member and creditor
of the company. Such sum may be considered for final adjustments of the
rights of contributories.
 In a company limited by guarantee having a share capital, every member
shall be liable to the amount undertaken to be contributed to the assets of
the company at the time of winding up, and any sum unpaid on shares
held by him.

2. Directors Having Unlimited Liability

In winding up of a limited company, any past or present director whose liability

is unlimited shall be liable to contribute as an ordinary member. He shall
contribute as if he was a member of an unlimited company, provided that:
[Sec. 295]

 A past director shall not be liable to contribute if he ceased to hold office

for 1 year or more before the commencement of winding up.
 A past director shall not be liable to contribute for any debt or liability
contracted after he ceased to hold office.
 A director shall not be liable to contribute, subject to the articles, unless the
Court requires him to contribute.

3. Death of Contributory

If a contributory dies, his legal representatives shall be liable to contribute

to the assets of the company. If legal representatives make a default in
paying any money, action may be taken for recovery from the property of
the deceased contributory. [Sec. 298]

4. Insolvency of Contributory

If a contributory becomes insolvent, his assignee in insolvency shall be the

contributory. The assignee shall be liable to contribute out of the assets of
the insolvent. [Sec. 299]

5. Body Corporate as Contributory

 If a body corporate which is a contributory is ordered to be wound up, the
liquidator of that body corporate shall be the contributory. He shall be liable
to contribute out of the assets of the body corporate [Sec. 300]

Modes of Winding Up

A company can be wound up in any of the following ways: [Sec. 293]

 Winding up by the Court

 Voluntary winding up.
 Winding up under supervision of the Court

Consequences of winding up

Some important consequences of winding up of company are:

 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.
 As regards the shareholders: A new statutory liability as contributories 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.
 As regards the creditors: They cannot file or continue suits against the
company, except with the leave of the Court.
They cannot proceed with the execution, if they have obtained decrees
already.
They must lodge their claim and prove their debt before the liquidator.
 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.
 As regards the disposition of company’s property, all such dispositions are
void unless with the leave of the Court or the liquidator.

WINDING UP BY COURT

Winding up of the company by the Court:

(i) The winding up of a company by an order of the Court is called the
compulsory winding up. Section 305 of the Ordinance envisages the following
circumstances, under which a company may be wound up by the Court on the
petition submitted to it:-

(a) if the company has, by special resolution, resolved that the company be
wound up by the Court;

(b) if default is made in delivering the statutory report to the registrar or in

holding the statutory meeting or any two consecutive annual general meetings;

(c) if the company does not commence its business within a year from its
incorporation, or suspends its business for a whole year;

(d) if the number of members is reduced, in the case of private company, below
two or, below three in case of public company and below seven in case of listed
company.;

(e) if the company is unable to pay its debts;

(f) if the company is-

(i) conceived or brought forth for, or is or has been carrying on, unlawful or
fraudulent activities; (ii) carrying on business not authorised by the
memorandum;

(iii) conducting its business in a manner oppressive to any of its members

or persons concerned with the formation or promotion of the company or
the minority shareholders;

(iv) run and managed by persons who fail to maintain proper and true
accounts, or commit fraud, misfeasance or malfeasance in relation to the
company; or

(v) managed by persons who refuse to act according to the requirements

of the memorandum or articles or the provisions of this Ordinance or fail to
carry out the directions or decisions of the Court or the registrar or the
Commission given in the exercise of powers under this Ordinance;

(g) if, being a listed company, it ceases to be such company;

(h) if the Court is of opinion that it is just and equitable that the company should
be wound up; or

(i) Complete deadlock in the management of the company.

(ii) Failure of company’s main object.

(iii) Recurring losses.

(iv) Aggressive or oppressive policy of majority shareholders.

(v) Incorporation of company for fraudulent or illegal purpose.

(vi) Public interest.

Procedure for winding up of company and filing of petition before

respective High Court:

 To pass Special Resolution by 3/4th majority of the members of the

company that the company be wound up by the Court in case if the
company itself intend to file a petition and to file the Special Resolution on
Form 26 with the registrar.
 To prepare a list of the assets to ascertain that the company is unable to
pay its debts.
 To prepare a list of the creditors
 In case of defaults in payments the creditor or creditors to make a decision
for the filing of the winding up petition.
 In case if the Commission or Registrar or a person authorised by the
Commission intend to file a petition, they should not file a petition, for
winding up of the company, unless an investigation into the affairs of the
company has revealed that it was formed for any fraudulent or unlawful
purpose or that it is carrying on a business not authorised by its
memorandum or that its business is being conducted in a manner
oppressive to any of its management has been guilty of fraud, misfeasance
or other misconduct towards the company or towards any of its members.
 To engage advocates for the preparation and filing of the petition.
Who is competent to file petition for winding up in the Court?

 Petition may be presented by any one of the following:

 The company may itself by passing a special resolution
 Creditor or Creditors.
 Any contributory or contributories
 Registrar of Companies
 Securities and Exchange Commission of Pakistan or by a person
authorised by the Commission

Voluntary winding up of members of the company

A company can be wound up voluntary

(a) on expiration of the period fixed for the duration of the company by its Articles
of Association or on occurrence of event leading to dissolution of the company as
provided in the Memorandum and Articles of Association and company has to
pass a special resolution in general meeting for its wound up voluntarily within
five weeks of filing of declaration of solvency, and

(b) on passing of the special resolution that the company be wound up

voluntarily. A voluntary winding up is deemed to commence at the time of
passing of the resolution for voluntary winding up. The company ceases to carry
out business just on commencement of winding up. However, it can carry on its
activities and business for beneficial winding up of the company.

PROCEDURE FOR VOLUNTARY WINDING UP

The following steps are to be taken for Member’s voluntary winding up under the
Provisions of the Ordinance, and the Companies Rules.

Step 1. Where it is proposed to wind up a company voluntarily, its directors make

a declaration of solvency on Form 107 prescribed under Rule 269 of the Rules
duly supported by an auditors report and make a decision in their meeting that
the proposal to this effect may be submitted to the shareholders. They, then, call
a general meeting (Annual or Extra Ordinary) of the members (Section 362)

Step 2. The company, on the recommendations of directors, decides that the

company be wound up voluntarily and passes a Special Resolution, in general
meeting (Annual or Extra Ordinary) appoints a liquidator and fixes his
remuneration. On the appointment of liquidator, the Board of directors ceases to
exist. (Sections 358 and 364)

Step 3. Notice of resolution shall be notified in official Gazette within 10 days and
also published in the newspapers simultaneously. A copy of it is to be filed with
registrar also. (Section 36)

Step 4. Notice of appointment or change of liquidator is to be given to registrar by

the company alongwith his consent within 10 days of the event. (Section 366)

Step 5. Every liquidator shall, within fourteen days of his appointment, publish in
the official Gazette, and deliver to the registrar for registration, a notice of his
appointment under section 389.

Step 6. If liquidator feels that full claims of the creditors cannot be met, he must
call a meeting of creditors and place before them a statement of assets and
liabilities. (Section 368)

Step 7. A return of convening the creditors meeting together with the notice of
meeting etc. shall be filed by the liquidator with the registrar, within 10 days of the
date of meeting. (Section 368)

Step 8. If the winding up continues beyond one year, the liquidator should
summon a general meeting at the end of each year and make an application to
the Court seeking extension of time. (Section 387(5))

Step 9. A return of convening of each general meeting together with a copy of the
notice, accounts statement and minutes of meeting should be filed with the
registrar within 10 days of the date of meeting. (Section 369)

Step 10. As soon as affairs of the company are fully wound up, the liquidator
shall make a report and account of winding up, call a final meeting of members,
notice of convening of final meeting on Form 111 prescribed under Rule 279 of
the rules before which the report / accounts shall be placed. (Section 370)

Step 11. A notice of such meeting shall be published in the Gazette and
newspapers at least10 days before the date of meeting. (Section 370).

Step 12. Within a week after the meeting, the liquidator shall send to the registrar
a copy of the report and accounts on Form 112 prescribed under Rule 279 of the
Rules. (Section 370).
Voluntary Winding Up

A company wound up by the members or creditors, without any interference of

the court or any other authority.

Members and creditors are left free to settle their affairs without going to the
Court or SECP.

It is the most common mode of winding up.

Circumstances- Voluntary Winding Up

Ordinary Resolution

 When the period of the company as laid down in the articles is expired
 When the event on the happening on which, the Article provides that the
company is to be dissolved, has occurred

Special Resolution

 At any time and for any reason

 Advertised in Official Gazette and some Newspapers (District of
Registered Office)- within fourteen days

Procedure for Voluntary Winding Up

1. Appointment of Company Liquidator Company in its general meeting shall

appoint one or more

liquidators from the panel prepared by the Central Government.

The company fixes remuneration to the Liquidator Creditors passed resolution-

approved by the majority of creditors

2. Board’s power ceases to exist on appointment of Company Liquidator

Liquidator officially takes over all the powers of the Board and proceed with
winding up process.

3. Power to fill vacancy in the office of Liquidator: If vacancy occurs- the

company general meeting may fill the vacancy

4. Notice of appointment of Liquidator to be given to the Registrar Within 10 days

5. Company liquidator to submit report on progress of winding up Quarterly- in
such form or in such manner as may be prescribed to members and creditors.
Call meeting of the members and creditors as and when necessary If fails to
comply- punishable with fine which may extend to ten lakh rupees

Final meeting and dissolution of company

 Company liquidator – report of winding up

 Report- property and assets of the company have been disposed off and
its debt fully discharged to the satisfaction of creditors.
 General Meeting- for presenting the accounts
 Majority of members considers- Pass a resolution for its dissolution
 Liquidator within 2 weeks send to the Registrar- a copy of the final winding
up accounts and a statement in respect of each meeting and copies of the
resolution passed in the meeting
 Liquidator may file an application to the Tribunal for passing an order of
dissolution of the company.
 If the Tribunal is satisfied, the Tribunal shall pass an order dissolving the
company within sixty days of the receipt of the application.
 The Company Liquidator shall file a copy of the order of dissolution with
the Registrar within thirty days.
 The Registrar shall publish a notice in the Official Gazette that the
company is dissolved.
 If the liquidator fails to comply the provisions, he shall be punishable with
fine which may extend to one lakh rupees.

Case laws
Casae 1 (Deadlock): XYZ Ltd.'s directors are equally divided on a critical
decision, leading to a complete deadlock in management. No business
can be conducted. A shareholder files a petition under Section 215 of the
Companies Act for winding up due to the inability to continue the business.
The court might order winding up or appoint an administrator to resolve the
deadlock.

Case 2 (Just and Equitable): PQR Ltd. was formed for a specific project, which
is now complete. The shareholders cannot agree on how to proceed. A
shareholder files a petition under Section 214 of the Companies Act for
 winding up as it is just and equitable to do so. The court will consider the
circumstances and decide on the petition.

Case 3 (Insolvency): ABC Ltd. is unable to pay its debts as they fall due. A
creditor files a petition with the court for winding up under Section 220 of the
Companies Act, 2017. The court, after considering the arguments, orders the
winding up of ABC Ltd.

Case 4 (Deadlock):

 Company: XYZ Ltd.

 Reason: The directors of XYZ Ltd. are equally divided on a critical
business decision, leading to a complete deadlock. No business can be
conducted.
 Action: A shareholder files a petition under Section 215 of the Companies
Act for winding up due to the inability to continue the business.
 Possible Outcome: The court might order winding up or appoint an
administrator to resolve the deadlock.

Case 5 (Just and Equitable):

 Company: PQR Ltd.

 Reason: PQR Ltd. was formed for a specific project, which is now
complete. The shareholders cannot agree on how to proceed.
 Action: A shareholder files a petition under Section 214 of the Companies
Act for winding up as it is just and equitable to do so.
 Possible Outcome: The court will consider the circumstances and decide
on the petition. Winding up might be ordered, or the court could propose
alternative solutions.

Case 6 (Misfeasance):

 Company: DEF Ltd.

 Reason: The company's directors are suspected of misusing company
funds for personal gain. Creditors and shareholders believe this
mismanagement has severely impacted the company's financial health.
 Action: A creditor or shareholder files a petition under Section 347 of the
Companies Act for winding up due to misfeasance by the directors.
 Possible Outcome: The court can order winding up and investigate the
allegations of misfeasance. Depending on the findings, the directors might
be held personally liable.

Case 7 (Failure to Comply):

 Company: MNO Ltd.
 Reason: MNO Ltd. has persistently failed to comply with filing
requirements mandated by the Companies Act, such as annual returns
and financial statements. The SECP (Securities and Exchange
Commission of Pakistan) may initiate action.
 Action: The SECP or Registrar may file a petition for winding up under
Section 310 of the Companies Act due to non-compliance.
 Possible Outcome: The court might order winding up or impose penalties
on the company. MNO Ltd. could be given a chance to rectify the situation
before the winding up proceeds.