Role of Liquidator in Winding up Process
Company Law
Submitted by : Bhumi R. Doshi
Division & Roll No:- D-274
Jitendra Chauhan college of Law
Submitted to : Prof. Sneha Anilkumar.
Acknowlodgement
Presentation inspiration and motivation have always played a key role in the success of any venture.
I express my sincere thanks to Dr.Priya Shah, Principal, Jitendra Chauhan College of law.
I pay my deep sense of gratitude to my Prof.Sneha Anil kumar at Jitendra Chauhan college of law.
I am immensely obliged to my friends for their elevating inspiration, anchoring guidance and kind
supervision in the complete of my project.
I feel to acknowledge my indebtedness and deep sense of gratitude to my guide Prof.Sneha Anil Kumar
who is valuable guidance and kind supervision given to make throughout the course and shape the
present work as it shows.
Last,but not the least, my parents and my family are also important inspiration for me. So with due
regards, I express my gratitudes to them.
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Table of Content;
Sr.No Description Page No.
1 Introduction 4
2 Grounds of Liquidation 6
3 Role of Liquidator 8
4 Distribution of Funds vis a vis Waterfall Mechanism 11
5 Conclusion 13
6 Bibliography 14
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Introduction
Liquidation is that the process in accounting by which a corporation is brought to an end in India,
United Kingdom, Australia, New Zealand, Cyprus, United States of America, Canada, Italy and
others. The assets and property of the corporate are redistributed.
Liquidation is additionally sometimes noted as winding-up or dissolution, although dissolution
technically refers to the last stage of liquidation. the method of liquidation also arises when
customs, an authority or agency in a very country accountable for collecting and safeguarding
customs duties, determines the ultimate computation or ascertainment of the duties or drawback
accruing on an entry
Liquidation may either be compulsory (sometimes brought up as a creditors' liquidation or
receivership following bankruptcy, which can lead to the court creating a "liquidation trust") or
voluntary (sometimes noted as a shareholders' liquidation, although some voluntary liquidations
are controlled by the creditors).
The term "liquidation" is additionally sometimes used informally to explain an
organization seeking to divest of a number of its assets. for example, a distributor may need to
shut a number of its stores. For efficiency's sake, it'll often sell these at a reduction to a
corporation specializing in land liquidation rather than becoming involved in a region it's going
to lack sufficient expertise in to control with maximum profitability.
Compulsory liquidation
The parties which are entitled by law to petition for the compulsory liquidation of a company
vary from jurisdiction to jurisdiction, but generally, a petition may be lodged with the court for
the compulsory liquidation of a company by:
The company itself
Any creditor which establishes a prima facie case
Contributories: Those shareholders be required to contribute to the company's assets on
liquidation
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A Operational Creditor, usually the one responsible for competition and business
An official receiver
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Grounds for Liquidation
The grounds upon which an entity can apply to the court for an order of compulsory liquidation
also vary between jurisdictions, but normally include:
The company has so resolved
The company was incorporated as a corporation, and has not been issued with a trading
certificate (or equivalent) within 12 months of registration
It is an "old public company" (i.e. one that has not re-registered as a public company or
become a private company under more recent companies legislation requiring this)
It has not commenced business within the statutorily prescribed time (normally one year) of
its incorporation, or has not carried on business for a statutorily prescribed amount of time
The number of members has fallen below the minimum prescribed by statute
The company is unable to pay its debts as they fall due
It is just and equitable to wind up the company, as for example specified by an Insolvency
Act[4]
In practice, the vast majority of compulsory winding-up applications are made under one of the
last two grounds.[5]
An order will not generally be made if the purpose of the application is to enforce payment of a
debt which is bona fide disputed.[6]
A "just and equitable" winding-up enables the grounds to subject the strict legal rights of the
shareholders to equitable considerations. It can take account of personal relationships of mutual
trust and confidence in small parties, particularly, for example, where there is a breach of an
understanding that all of the members may participate in the business, [7] or of an implied
obligation to participate in management.[8] An order might be made where the majority
shareholders deprive the minority of their right to appoint and remove their own director. [9]
In a Company, Liquidator is appointed by a court, shareholders, and creditors to sell off the
assets of a Company going for winding up. A person should be qualified to be a liquidator of the
Company. The Liquidator will take control of the business and will distribute the assets of the
Company. The appointment of Liquidator will only be effective if the majority of the creditors
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approve for the same. If the creditors do not allow for the appointment of Liquidator, then
creditors should appoint another Liquidator. The main aim to appoint a Liquidator is that fair
distribution of assets
ts is done to the shareholders.
The Company in General Meeting where a resolution for Winding Up is passed should appoint a
Company Liquidator. The fees paid to the Company Liquidator should also be decided in the
same General Meeting. After the appointmen
appointmentt of an individual as Company Liquidator, he/she
should call a Meeting immediately of the Liquidation Committee. The meeting of the
Liquidation Committee should be called within 6 weeks of its establishment.
What is the Powers of Liquidator in Voluntary Wi
Winding Up of the Company?
Subject to adherence to specific legal provisions and legal procedures, the Powers of Liquidator
are broadly summarized in two heads which are as follows:
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Role Of the Liqudiator
With the Sanction of Court
The Company Liquidator with Court Sanction can exercise the following powers:
To institute or defend any, trial or other lawful proceedings, criminal or civil in the name
of Company.
To carry on operations of the Company.
To sale off the immovable property and actionable claims of Company by auction in
public or through a contract privately. The power of transfer is with the Liquidator
regarding these sales.
To raise the money required as security of assets for the Company.
To assist him with his duties, the Company Liquidator can appoint a Pleader, an Attorney
or an Advocate.
To take securities from debtors in the discharge of any claim.
To make an arrangement for compromise of debts and other financial liabilities with the
contributories.
Without the Sanction of Court
The Company Liquidator without the sanction of court can exercise the following powers:
To inspect the files of the Registrar to check the records and returns of the Company. It is
not entitled to pay any dues of the Company while inspecting files.
To do all acts, when necessary, on behalf of Company, and execute all deeds and
documents for the purpose of use.
To accept, draw, make and endorse any bill of exchange on behalf of the Company.
To appoint a person as an Agent to do a business, which the Liquidator himself is not
able to do.
To receive Dividends in insolvency and prove rank and claim of any contributory for any
balance against its assets.
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To do any act which is necessary to be done as to obtain payment from a contributory.
The above act can be done in the Company Liquidator official name if it is not fit to use
the Company’s name.
To take out letters of administration in Company Liquidator official name.
Provide Notice of Appointment
Section 275(6) and 310 (4) of the Companies Act, 2013, mandates the Company Liquidator
appointed should within 7 days of appointment notify the Tribunal about the appointment. A
declaration should also be made in which the conflict of interest or lack of independence will be
disclosed by the Liquidator.
Conduct Proceedings while Winding Up
According to the provisions of Section 457 of Companies Act, 2103, [1] the Liquidator should
conduct proceeding while winding up of the Company. The Liquidator should perform all the
duties as referred by the court. The act should be valid as per law.
Submission of Preliminary Report
According to provisions of Section 455 of Companies Act, 2013, the Liquidator is entitled to
submit a preliminary report in the court. The Preliminary report should include the following:
Statement of Affairs from Directors
Capital issued of the Company
Subscribed and paid Capital
The estimated amount of Assets
Cause of failure
His opinion regarding fraud and punishable offence committed by Directors of Company
Collecting and Distributing Company Property
After winding up order is made by the court, immediately the Liquidator should manage all the
assets of the Company. The right to enjoy those accumulated assets should vest with the
Liquidator. The Liquidator, after preparing the schedules of all creditors, distributes the assets
proportionately to all the creditors.
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Obeying Order of Court
While performing duties, the Liquidator should abide by the orders of the court. The Liquidator
should also be careful regarding his/her actions that whether they are in line with the law or not.
The duties should be carried out faithfully and honestly by the Liquidator.
Hold Meeting for Creditors and Contributories
The Liquidator can call meetings of Creditors and Contributors whenever he/she deems fit. The
creditors, when direct the Liquidator to summon the meeting, he shall follow the directions of the
Creditors and Contributories.
Maintaining Paper Books
The Liquidator is authorized to maintain proper books. The books should include each entry and
minutes of the proceeding at meetings.
Maintain Accounts
The Liquidator is authorized to pat al the cash with him with the Reserve Bank of India (RBI).
The receipts and payments to Liquidator should be presented in the court twice a year.
Appointment of Inspection Committee
The Liquidator is entitled to appoint an inspection committee under him if the court directs him.
The committee should be formed within 2 months from the direction of the court. The committee
should be formed with the consent of the majority of creditors. If the creditors form no
committee, then the court will accordingly form 1 Committee for the Company.
Inform about Pending Liquidation
If the Winding Up of the Company is not completed in a year, then the Liquidator should file a
statement in prescribed format about the proceedings of Winding up of the Company.
Investigate Affairs of Company
The Liquidator can examine the conduct of the Company’s present and past officers and can see
whether they were guilty of any misconduct in the Company or not.
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Distribution of Funds vis a vis Waterfall Mechanism:
Section 53 of the Insolvency and Bankruptcy Code of India, 2016 : Distribution of assets:
*53. (1) Notwithstanding anything to the contrary contained in any law enacted by the
Parliament or any State Legislature for the time being in force, the proceeds from the sale of the
liquidation assets shall be distributed in the following order of priority and within such period
and in such manner as may be specified, namely :—
(a) the insolvency resolution process costs and the liquidation costs paid in full;
(b) the following debts which shall rank equally between and among the following :—
(i) workmen’s dues for the period of twenty-four months preceding the liquidation
commencement date; and
(ii) debts owed to a secured creditor in the event such secured creditor has relinquished
security in the manner set out in section 52;
(c) wages and any unpaid dues owed to employees other than workmen for the period of twelve
months preceding the liquidation commencement date;
(d) financial debts owed to unsecured creditors;
(e) the following dues shall rank equally between and among the following:—
(i) any amount due to the Central Government and the State Government including the
amount to be received on account of the Consolidated Fund of India and the Consolidated Fund
of a State, if any, in respect of the whole or any part of the period of two years preceding the
liquidation commencement date;
(ii) debts owed to a secured creditor for any amount unpaid following the enforcement of
security interest;
(f) any remaining debts and dues;
(g) preference shareholders, if any; and
(h) equity shareholders or partners, as the case may be.
(2) Any contractual arrangements between recipients under sub-section (1) with equal ranking, if
disrupting the order of priority under that sub-section shall be disregarded by the liquidator.
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(3) The fees payable to the liquidator shall be deducted proportionately from the proceeds
payable to each class of recipients under sub-section (1), and the proceeds to the relevant
recipient shall be distributed after such deduction.
Explanation.—For the purpose of this section—
(i) it is hereby clarified that at each stage of the distribution of proceeds in respect
of a class of recipients that rank equally, each of the debts will either be paid in full, or
will be paid in equal proportion within the same class of recipients, if the proceeds are
insufficient to meet the debts in full; and
(ii) the term “workmen’s dues” shall have the same meaning as assigned to it in
section 326 of the Companies Act, 2013.
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Conclusion
The Company Liquidator is authorized to perform all the Powers and Duties as prescribed under
the Companies Act, 2013. The Liquidator is accountable to shareholders and the creditors of the
Company. There is a fiduciary relationship between the Liquidator and the Company and its
creditors. The primary purpose of appointing Liquidator is to wing up a failed business and act
with professional efficiency.
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Biblography
Sites:-
1. JSTOR
2. www.legalindia.com
3. www.jlrlegal.in
4. https://corpbiz.io/
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