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Voluntary Winding Up By The Creditors – Explain


A voluntary wind-up is a self-imposed wind-up or liquidation of a company by the consent of all the shareholders of the company. This decision comes into force when the directors of the company or leaders take the decision to stop running the company or it has no reason to carry on the company. The wind-up of the company is not ordered by a court.

Voluntary wind-up is also called voluntary liquidation. The purpose of the liquidation is to terminate and stop all the company’s operations, wrapped its financial affairs and disposing of its corporate structure in the manner prescribed, and by paying back the creditors of the company in accordance with their assigned investment or property.

Meaning of Voluntary Winding Up By Creditors

Section 500 to 509 of the Companies Act provides for the voluntary winding up by creditors. Under this winding up the creditors play a central role in winding up proceedings and in fact, they rule over the proceedings and are also helpful for it. This proceeding of winding up is initiated in the case when the company is unable to pay the debts and the board of directors is not in the position to declare the exact liability of the company towards the creditors.

In the member’s voluntary winding up, it is stated that the directors should make a declaration of solvency before 5 weeks from the date of such a General Meeting in which the resolution for winding up is to be passed.

If the directors are unable to make such declaration of solvency within the specified time, the winding-up shall be known as the creditor’s voluntary wind-up and the procedure for it should be followed according to the provisions provided for that purpose.

Voluntary wind-up of the company causes because of the company is insolvent and unable to perform its liabilities. To carry out voluntary wind-up of the private limited company procedure, there has to be called a winding-up meeting in which a resolution is passed to carry out the procedure of wind-up of the company. The creditors winding up meeting should be called on the days fixed for General Meeting or on the very next day of it.

Provisions applicable for creditors wind-up – Section 8

Procedure for Voluntary Winding Up by the Creditors-

The procedure for creditors voluntary wind-up is given in the Companies Act, 1956, it is as follows-

1. The holding of the meeting of the members and creditors

First of all, a meeting of all members shall be held and a special resolution shall be passed for winding up of the company. The meeting of the creditors should also be conducted on the same day as the General Meeting or on the very next of it.

2. Provisions of the creditors meeting

The provisions for the creditors meeting are as follows-

(a) The notice of the Wind-up Meeting shall be sent to all the creditors by way of the post at the same time as the notice for the general meeting.

(b) The notice for General Meeting should also be published in two famous local newspapers in the area where the company is registered office is situated.

(c) A list of creditors, the amount due to them and a statement of affairs should be prepared before the meeting and placed at the meeting of the creditors.

(d) A copy of the resolution passed in the creditors meeting if any, should be filed with the Registrar within ten days from the passing date of resolution.

3. Appointment of Liquidators

At the respective meetings of members and creditors, they should appoint one or two Liquidators. They can also appoint the same person as the liquidator and no problem will arise out of it. But when creditors and members appoint different liquidators then the person nominated by creditors is alone entitled to act as Liquidator. If no liquidator is appointed by the creditors then the person appointed by the members at the meeting will be considered as Liquidator and vice versa.

4. Appointing a Committee of Inspection

A committee of inspection shall be appointed by the creditors at their meeting and that committee shall consist of a maximum of six members. The members can also appoint five more members to the committee appointed by the creditors at their meeting. When, if creditors do t want the members appointed by the shareholders of the company shall not act as members of the committee of inspection, then the nominees can’t act as such members of the committee of inspection.

5. Salary of Liquidator

The salary or remuneration of the liquidator shall be fixed by the committee of inspection. If there is no committee is appointed by the members and the creditors or that Committee does not fix the salary of the liquidator, then creditors ha e the power to fix the salary amount.

In a condition when the salary/remuneration is not fixed either by committee or by creditors, then the National Company Law Tribunal shall fix the amount of salary. The salary/remuneration once fixed cannot be increased with the permission of the National Company Law Tribunal.

6. Powers of Board to Cease on Appointment of Liquidator

The Board of Directors has powers to cease on the appointment of a liquidator. But when the committee of inspection or if there is no such committee, then the credi6may sanction the continuance of the Board, in General Meeting.

7. Power to fill in the vacancy in the office of Liquidator

When a vacancy occurs in the office of Liquidator due to death, resignation or otherwise, that liquidator must not be appointed by the National Company Law Tribunal, at such conditions creditors in general meetings may fill the vacancy by appointing a liquidator.

8. Proceedings of wind-up conducted by the Liquidator – Section 509

Wind-up proceedings in creditors’ voluntary winding-up are sort of similar to that of members voluntary winding up, however, subject to such exceptions. The procedure for winding up is as follows-

(a) When the process of winding up continues merely than one year, then the liquidator must call for a meeting of creditors as well as ms members at the time of the end of the first year.

(b) When the process of winding up carries on more than one year them the meeting should also be called for at the end of each subsequent year.

(c) The statement in the prescribed form must be submitted to the meetings with the prescribed particulars. The liquidator shall also place an account of his acts and dealings before the meeting.

9. Dissolution and Final Meetings

The provisions of the Act regarding the final meetings and dissolution are as follows-

(a) When the affairs and operations of the company are totally wound up, the liquidator has to prepare the accounts of winding up. The account shall contain all the information relating to winding up that has been conducted by the company and how the property of the company has been disposed of.

(b) After that liquidator shall call for a meeting of the members and also the creditors of the company. Each of these meetings shall be called by an advertisement in the official gazette and also in the newspaper.

(c) The statement of affairs and operations shall be submitted in each of the meetings organised for the winding up.

(d) After every meeting within a week after that date of meetings, liquidation has to send the copy of each and every above along with the return to each of the meetings to the Registrar and Official Liquidator.

(e) Whenever a quorum is not present at any of such meetings, the liquidator should make a return that the meeting was duly called and that no quorum was instead of the return specified in point three above present thereat.

(f) The Registrar shall register on receipt of the account and return mentioned in point three above or the return mentioned in point four immediately.

(g) A copy of the same shall be sent to the official Liquidator and the Liquidator should submit a report therein to the National Company Law Tribunal.

However, in practice, the procedure above mentioned has emerged and it has become a tool for creditors against the company it can be said, whose debts or investment is not being returned in a satisfying manner, so they can recover their debts in this way.


So as looking towards the above-mentioned provisions it can be said that the company Act has been provided the simple method and way for winding up when the mechanism and operations of the company are not good, and it is not so complicated as it can be initiated either by directors and if not by them then by creditors with informing to all the members or creditors. While keeping in mind the interest of all the persons belonging to the company.

(As after the enactment of the Companies Act, 2013, this provision has been repealed from the new Act and only other types of the wind-up of the company remain unchanged. It was repealed by some reasonable causes or circumstances arising out of it. As its unusual advantage was being taken by the creditors.

This Article is Authored by Magaonkar Revati Umashankar, 5th Year BSL Student at Dayanand College of Law.

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