Demerger and voluntary winding up

Demerger and voluntary winding up

A company which has been split into several companies can voluntarily wind up following the provisions under the Companies Act 1956, Section 484 to 498. Section 494 of the Companies Act, describes a provision that if a company (referred to as the transferor company) is planning to voluntarily wind up or if a whole or part of a property or business is being transferred or sold to another company (referred to as transferee company), the liquidator of the transferor company with the sanction of the company receive a compensation or partial compensation for transfer or sale of shares or policies in the transferee company. This compensation is meant to be distributed among the members of the transferor company or for an arrangement wherein the members of the transferor company can take part in the profits or other benefits of the transferee company in place of receiving cash, shares, policies or other interests.

A company may voluntarily wind up, if it is not able to carry on its business or if it was begun for a specific purpose and that purpose has been fulfilled or if it is unable to meet its financial obligations. Two modes of Voluntary winding up are

• Voluntary Winding Up by members
• Voluntary Winding Up by creditors

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