What are the consequences of voluntary winding up of a company ?

The consequences of voluntary winding up are as follows:

(1) A voluntary winding up shall be deemed to commence from the date or the passing of the resolution to that effect (Sec. 486).

An Apple a Day: PE Rules & Consequences

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(2) From the commencement of voluntary winding up, the company ceases to carry on its business, except so far as may be required for the beneficial winding up thereof (Sec. 487).


(3) The possession of the assets of the company vests in the Liquidator for realisation and distribution among the creditors. The corporate state and powers of the company shall, however, continue until it is dissolved (Sees. 456 and 487).

(4) A resolution to wind up voluntarily operates as notice of dis­charge to the employees of the company, except when the business is continued by the Liquidator for the beneficial winding up of the company, or when the liquidation is only with a view to ‘reconstruc­tion.’ But where an employee has been appointed on contract basis and the term of contract has not expired on the date of winding up, the resolution will operate as a wrongful discharge of the employee and hence the company shall believable for damages for the breach of contract (Reigate vs. Union Manufacturing Co.).

(5) On the appointment of the Liquidator, all the powers of the Board of Directors, Managing Director or Manager, shall come to an end except: (a) for the purpose of giving notice to the Registrar about any vacancy occurring in the office of Liquidator and of the name of the Liquidator appointed to fill such vacancy, or (b) in so far as the company in general meeting or the Liquidator or the Committee of Inspection or the creditors in a creditors’ voluntary winding up, may sanction the continuance of their powers (Sees. 491 and 505).

(6) The company’s creditors cannot file suits or continue any pending suits against the company. They are required to lodge their claims and prove their debts to the Liquidator. In case of disputed claims, however, a voluntary winding up does not operate as a stay of any existing proceedings or prevent the institution of new proceedings.


(7) All transfers of shares or alterations in ‘the status of the members, made after the commencement of the winding up of the company, shall be void, except when it is made with the permission of the Liquidator (Sec. 536).

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