Winding Up Petitions Explained
By Space Coast Daily // April 19, 2022
When a company lands into a lot of debts, and they are unable to pay off these debts, they choose to file winding up petitions. And to carry out this procedure, companies need professional lawyers who can help them with legal proceedings.
What Is Winding Up Petition?
In layman’s terms, a winding-up petition is a petition to wind up a company which means to follow the legal procedure of closing a company. In this process, most of the assets and liabilities of the company are sold, and all the debts of the company are cleared. In legal terms, the definition of a winding-up petition is that “ According to Clause (94-A) of Section 2 of the Companies Act, 2013., “Winding Up” means winding up under this act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable”.
The person responsible for carrying out this task is known as a liquidator. And once the debts are settled, the remaining assets are distributed among partners as per the ratio they have contributed to the company.
When Can A Wind Up Petition Be Filed?
Under Section 271, a company is eligible to be winded up by a Tribunal when –
■ The company is not able to clear off its debts.
■ A company decides that it wants to wind up, or any tribunal orders it to wind up.
■ If the company is declared sick meaning, it is unable to conduct its operation and is not likely to revive from this state.
■ The company has done some actions that harm the integrity, sovereignty, or security of India.
■ It is found that the company has filed some default documents with the registrar and is accused of conducting business in a fraudulent manner.
A company declares to wind up voluntarily when its directors decide to do so or when the business is moving towards insolvency.
Who Can File A Wind Up Petition?
Section 272 of the Indian Company Act, 2013 dictates that a wind-up petition can be filed by any of the following persons –
■ The creditor of the company
■ Stakeholders in the company
■ The registrar
■ Any person working for the central government
After an appeal is filed by any of the above entities, the tribunal may choose to dismiss their plea, or they can pass an interim order for the petition. However, they can also appoint a provisional liquidator who can assess the assets until the final judgment is given. Therefore, it becomes crucial for the company to get a good lawyer who can manage these legal proceedings smoothly.
Moreover, the petition should contain an explicit mention of all the grounds based on which the company seeks to wind up. And only when the relevant data is provided can a company be eligible for the wind-up. Furthermore, the petition must include a statement of the witness and all the personal details for the verification of the witness.
What Happens After The Petition Is Filed?
When a wind-up petition is filed, the tribunal may choose to dismiss it, and in case the petition is accepted, the company is given 21 days to respond to creditors. And if the company is unable to reply, then the winding-up procedures are initiated. However, no company can be allowed to wind up if the petition is filed in bad faith or in a suspicious manner.
After the petition is accepted, a company is granted thirty days to prepare the statement of its affairs. This statement includes a brief overview of all the assets and liabilities of the company, which provides the court with every minute detail of the company.
Winding up is indeed a complex process, and one needs to be acquainted with the rules listed under Section 270-365 of the Indian Companies Act, 2013. Therefore, it is best to leave this job to a professional lawyer.