Unit - 6
Liquidation of the company
When a company decides to dissolve itself on its own terms, as approved by the shareholders of the company refers to voluntary liquidation. When the companies decide not operating anymore this leads to occurrence of such decisions. Voluntary liquidation begins when the company passes the resolution, and the company generally ceases to carry on business at that time.
The company can be wound up voluntarily by the mutual agreement of members of the company, if:
- The company passes a Special Resolution stating about the winding up of the company.
- The company in its general meeting passes a resolution for winding up as a result of expiry of the period of its duration as fixed by its Articles of Association or at the occurrence of any such event where the articles provide for dissolution of company.
A company may be wound up voluntarily by passing ordinarily resolution or special resolution. Voluntary winding up may be of two types :-
Voluntary Winding Up by Members: In this case director make declaration called declaration of solvency and file it to the Registrar and Shareholders passes a special resolution for winding of the company. After that liquidator is appointed for winding up of the company. Liquidator after making scrutiny of accounts reports to the court. The company is deemed to have been dissolved from the date of submission of report.
Voluntary Winding up by Creditors: When company is not in a position to meet its liabilities the creditors takes over the control to secure their interests. In this case Resolution for voluntary winding up by creditors is passed by members in the general meeting of company.
Application of voluntary winding up
Voluntary liquidation proceedings can be initiated when a Company who intends to liquidate itself voluntarily and has not committed any default on any debt to any person.
Under several circumstances a Company may choose to be wound up voluntarily including winding up as a result of expiry of period of operation fixed in its Articles of Association or occurrence of an event provided in its Articles of Association for its dissolution.
Conditions for voluntary liquidation of a Company
- By an affidavit a declaration is verified from majority of the directors of the company stating that –
- They have made a full inquiry into the affairs of the company and they have formed an opinion that either the company has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation; and
- The company is not being liquidated to defraud any person
B. The declaration under sub-clause (a) shall be accompanied with the following documents:
- Audited financial statements and record of business operations of the company for the previous two years or for the period since its incorporation, whichever is later;
- a report of the valuation of the assets of the company, if any, prepared by a Registered Valuer.
Important rules and regulations
- Appointment of Liquidator:-An insolvency professional shall be eligible to be appointed as a liquidator if he, is independent of the Company
- Public Announcement by Liquidator:-
Within 5 days from his appointment the liquidator should make a Public Announcement (PA) which is to be published in one English Newspaper and one Regional Language Newspaper having wide circulation where the registered office and the principal office if any, of the Company is situated.
It should also be displayed on the website, of the Company; and on the website, designated by IBBI for his purpose.
- All money to be paid in to Bank Account:-
Bank Account needs to be opened in the Name of the Company followed by the words ‘in voluntary liquidation’ in a scheduled bank by Liquidator.
- Preliminary Report:-
Preparation of Preliminary Report by IP (To be submitted within 45 days from the commencement of the liquidation process to company).
- Submission of Proof of Claim:-
Particulars | Form No. |
Claims by Operational Creditors | Form B of Schedule-I |
Claims by Financial Creditors | Form C of Schedule-I |
Claims by Employee or workmen | Form D of Schedule-I |
Claims by Numerous Employee or workmen by Authorized Representative | Form E of Schedule-I |
Claims by other stakeholders | Form F of Schedule-I |
- Submit proof of claim to the liquidator in person, by post or by electronic means.
- Verification of claims and list of stakeholders:-
The liquidator shall verify the claims submitted within 30 days from the last date for receipt of claims and may either admit or reject the claim.
- Within 45 days from the last date for receipt of claims Liquidator shall prepare list of stakeholders
- Distribution:-The liquidator shall distribute the proceeds within 6 months from the receipt of amount to the stakeholders. The liquidation costs shall be deducted before such distribution is made.
- With the approval of the Company the liquidator may distribute amongst the stakeholders, an asset that cannot be readily or advantageously sold due to its peculiar nature or other special circumstances.
- Completion of liquidation:-The liquidator shall complete the entire process within 12 months from the date of commencement of liquidation.
- Final Report:-To prepare Final Report with details consisting of – Details of Audited Accounts of Liquidation & a statement containing Disposal of Assets of the Company, Disposal of the debts of the Company to the satisfaction of creditors, Disposal of litigation pending against/Sufficient Provision for any obligation arising out of any pending litigation; Statement of Sale of Assets showing Realized value, Cost of Realization, Manner & Mode of Sale, Details of the person to whom the sale is made, Explanation stating reasons for shortfall if the value of sale realized is less than the value is assigned.
- The Final report needs to be sending to the ROC by filing GNL-2, The IBBI via Courier/E-mail & the Adjudicating Authority i.e NCLT via Physical Filing.
Liquidator’s Statement of Account
If company is voluntarily winding up, liquidator is appointed by shareholders; therefore, he presents his final statement of account to the court company.
Receipts | Estimated value | Value realized | Payment | Rs | Payment Rs. |
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| (i) Legal Charges (ii) Liquidators Remuneration % on Rs. ….Realized % on Rs..Distributed
Total (iii) Liquidation Expenses (iv) Preferential Creditors (v) Creditors having a Floating Charge (vi) Secured Creditors (vii) Returns to Contributories (viii) Preference Share Capital (ix) Equity Share Capital |
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Note – the payment are made in the above shown order
References
- Corporate Accounting by Raj Kumar Shah
- Corporate Accounting by V K Goyal
- Corporate Accounting by Prof. Amitabha Basu
