Implications of Winding-up :
Winding- up more popularly known as liquidation of a company, relate to the proceedings by which (a) all its affairs are wound up, (b) its rights and liabilities are discerned, and (c) the claims of its creditors are settled either fully or to such an extent as may be warranted by the assets of the company. Having met all the obligations of the company out of the assets realised, the surplus assets of the company, if there be any, are distributed among its members in proportion to their rights laid down by the articles of association. On this being done and on compliance with certain other statutory requirements, the company is said to have been dissolved.
The term “winding-up‟ should not be construed as synonymous with „bankruptcy‟. In the matter of winding-up, the general rule is that a company may be wound if its members so desire or if it cannot pay its debts or if its extinction is considered desirable on any account. It thus follows that a company may be wound up even if it is otherwise solvent, for instance, winding – up for purposes of reconstruction.
Where a solvent company is being wound up, all debts payable on a contingency and claims against the company, present or future, certain or contingent, ascertained or sounding only in, damages, are admissible to proof against the company, a just estimate being made, as far as possible, of the value of such debts or claims as may be subject to any contingency, or may sound only in damages, or for some other reason may not bear a certain value (Section 528). As regards the right of the creditors of the company which is being wound up for its inability to pay its debts, the same rules prevail as in the case of insolvency law in respect of debts provable, the valuation of annuities and future and contingent liabilities and the respective rights of secured and unsecured creditors (Section 529).
Secured creditors may rely on the security and ignore the liquidation altogether, or value their security and prove for the balance of their debt, or give up their security and prove for the whole amount, Unsecured creditors are paid in the order prescribed by Section 530. Preferential creditors are paid first; liability for dividends is satisfied only if the claims of outsiders are fully met.
So far as the employees are concerned, a winding- up order by a Court operates as a notice of discharge to the employees and officers of the company except when the business of the company is continued [Section 445 (3)]. A voluntary winding- up which involves a discontinuation of the business also operates as a notice of discharge, and may also raise a claim for damage where there is an agreement for employment for a fixed time (Reigate vs. Union Manufacturing Co. (1918) 1KB).