Winding Up - Definition - Law Dictionary Home Dictionary Definition winding-up

Definition :

Winding-up, the process by which an insolvent estate is distributed, as far as it will go, amongst the persons having claims upon it. The term is most frequently applied to the winding-up of joint-stock companies.

The property of a company is collected and distributed firstly in discharge of its liabilities, and secondly, among its members according to their respective rights with a view to its dissolution. If the assets are not sufficient to meet the liabilities, a company is usually wound up by the Court. In other cases the winding-up is usually voluntary and conducted by the company itself either with or without the supervision of the Court. The provisions of the (English) Companies Act, 1929, govern a winding-up in any of these three modes (s. 156). In any winding-up the members who may be called upon to contribute are ascertained and their liability determined under ss. 157-162; see CONTRIBUTORIES. Debts and claims of all kinds require to be proved and if not of certain value to be estimated justly (s. 261).

If the company is insolvent, the rights of secured and unsecured creditors, the admissibility of debts and claims, and the valuation of annuities and future or contingent liabilities are to be regulated according to the law of bankruptcy (s. 262). S. 264 provides for preferential payments and (if the company is registered in England) postpones the claims of debenture holders under any floating charge created by the company, but only so far as the assets are insufficient to meet the claims of the general creditors.

Transactions which would be avoided against an individual in his bankruptcy as a fraudulent preference (Bankruptcy Act, 1914, s. 44, see FRAUDULENT PREFERENCE) are avoided by s. 265, the commencement of the winding-up being deemed to correspond with the presentation of a bankruptcy petition (for the date of commencement of a winding-up by the Court, see s. 175; of a voluntary winding-up, s. 277), and by s. 266, floating charges created within six months of the commencement of the winding-up are avoided unless the company was solvent immediately after the creation of the charge, subject to the provisions of the s. Onerous property may be disclaimed and rights under process of execution or attachment of creditors are restricted under ss. 267-270. Secs. 271-278 relate to offences, penalties, and the powers of the Court in connection therewith, and, among supplementary provisions, any company in liquidation must state on every invoice or order or business letter in which the name of the company appears that the company is being wound up (s. 280).

Winding-up by the Court may take place (s. 168)-

(1) In pursuance of a special resolution of the company requiring it; or

(2) If default is made in delivering the statutory report to the registrar or in holding the statutory meeting; or

(3) On non-commencement of business within one year from incorporation, or suspension of business for a year; or

(4) On reduction of members to less in number than seven, or, in a private company, below two; or

(5) On the company being unable to pay its debts; or

(6) 'Whenever the Court is of opinion that it is just and equitable that the company should be wound up.'

As from the commencement of the winding-up by the court (see s. 175), any disposition by the company of its property and any transfer of shares or alteration of the status of its members is void unless the Court otherwise orders (s. 173); and every attachment, sequestration, distress or execution if made after commencement is void undr s. 174; no action or proceeding shall be proceeded with or commenced against the company except by leave of the Court (s. 177); and in England the liquidator or provisional liquidator is to take the company's property into his custody or under his control.

Voluntary Winding-up may take place (see s. 225)-

(a) By effluxion of time under the articles and by resolution of the company in a general meeting for a voluntary winding-up.

(b) By special resolution to the same effect.

(c) By an extraordinary resolution of the company to the effect that it cannot by reason of its liabilities continue its business and that it is advisable to wind up. Thereupon the business of the company is to cease except for the purposes of a beneficial winding-up, but the corporate estate and powers of the company shall continue until it is dissolved (s. 228).

A Member's Voluntary Winding-up.-The name of a voluntary winding-up where the directors or a majority of them have made a statutory declaration that the company will be able to pay its debts in full within 12 months from the commencement of the winding-up (see ss. 230-236); in the absence of this declaration the winding-up is referred to in the Act as a 'creditors' voluntary winding-up' (see ss. 230 and 237-245).

Winding-up Subject to Supervision of the Court is obtained upon petition [(English) Companies (Winding-up) Rules, 1929] at any time after a company has passed a resolution for voluntary winding-up. The petition gives the Court jurisdiction over actions, and ss. 173 and 174 (see ante) will apply (ss. 257 and 258). Generally, an order for winding-up subject to the supervision of the Court is deemed to be an order for winding-up by the Court for all purposes except matters set out in the 9th Schedule to the Act (s. 260).

The Regulations of the Companies Act, 1929, relating to winding-up are contained in part V. of the Act and extend over 137 sections, and see the Com-panies (Winding-up) Rules, 1929, S.R. & O. 1929, 612, L/16. See also LIQUIDATOR; DIRECTORS. Consult Buckley on the Companies Acts; Lindley on Companies; Palmer's Co. Prec.

The words 'winding up' must be given the widest possible amplitude in order to serve the purpose of the Act namely, to control the proceedings of a textile company which is in liquidation, by the Central Government, M.S.T. Corporation v. Official Liquidator, AIR 1978 SC 476 (479). [Sick Textile Undertakings (Taking over of Management) Act, (72 of 1972), s. 8]

The process of settling accounts and liquidating assets in anticipation of a partnership's or a corporation's dissolution, Black's Law Dictionary, 7th Edn., p. 1594.