Process of Liquidation of a Company in India
Liquidation :
An economics and finance process called liquidation of a company ends a business. As a result of insolvency, the company distributes its property between its claimants, distributing its assets to them. Its general partners are subject to liquidation. An enterprise that is liquidated by realizing its assets and discharging its liabilities is called a liquidator.
Liquidator :
Generally, liquidators are appointed by court order, unsecured creditors, or shareholders of the company. His job is to liquidate assets (usually). Insolvent and bankrupt companies are appointed liquidators. All assets, properties, and persons of the organization are under his control.
On behalf of the company, he can act in different capacities. As part of liquidation, the liquidator can sell any assets that have equal value in the open market.
If assets have been misplaced or sold below market value, a liquidator must find out whether they need to be recovered the transaction.
Liquidation Process of a company :
Under the Insolvency and Bankruptcy Code, 2016 , companies can be wound up when they are unable to pay their debts or voluntarily. A company may be liquidated for reasons other than its inability to pay its debts under the Companies Act, 2013. The Ministry of Corporate Affairs notified the Companies Rules, 2020 (for winding up) on January 24th, 2020. Companies Act 2013 Section 270 governs winding up procedures. Initiate it:
As determined by the Tribunal
Totally voluntary.
Tribunal's winding up of the company :
The Companies Act 1956 allows companies to be wound up on the following grounds:
From the date of incorporation, the business may be suspended for one year or for the entire year.
In the Act, the minimum membership number is lowered to:
Two members in a private company
Seven members in a Public company
In the new Companies Act, 2013 some new grounds and situations for winding up have been added in addition to the above mentioned grounds.
Following are the circumstances in which a company may be wound up by a tribunal under the new Companies Act 2013:
Insolvent companies can't pay their debts.
Upon the resolution of the tribunal to wind up the company.
Taking part in activities that compromise the integrity, morality or security of the nation, or have spoiled or hurt friendly relations between neighboring/foreign countries.
After five consecutive financial years without filing its annual statement.
Tribunals may consider a winding up as equitable and just if they find or think that such a winding up would benefit the company.
Whether the company is engaged in fraudulent, illegal or any other illegal business, or whether a company employee or management member is involved in this activity.
Winding up petitions :
In terms of the provisions of the Act, section 272 discusses the filing of a winding up petition in one of the prescribed forms number 1,2, or 3, whichever applies to what is being winded up. The winding up petition must be submitted in three parts. Depending on the circumstances, the petition can be filed by the company, the creditors or the contributors, the central or state government, a registrar of a person authorized by the central or state government for that purpose alone, or any other acceptable party.
As part of the filing process, the petition must be accompanied by the statement of affairs on form number 4, which must be filed with it. All facts pertaining to the case must be stated in the petition by a specific date that cannot be more than 90 days before the time of the statement. It is essential to have an accountant who is practicing in the field of chartered accounting evaluate the statement when it is finished. As soon as the hearing date is set, the petition shall be advertised in a newspaper in both the English language and a regional language not less than 14 days before the hearing.
A voluntary winding up :
An organization can do a voluntary winding up by having the unanimous consent and decision of the members of the organization, as long as the following conditions are met:
In the event that the company passes a special resolution indicating that the company will be wound up.
In cases where the composition of the company is due to expire before the period set out in the articles of association has run out or if the occurrence of such events is in agreement with the articles of association, the company may be dissolved by a resolution passed by the general meeting of the company.
Voluntary winding-up process :
goog_1194658874- The company needs two directors to pass a resolution with a declaration that the company has no debts or it can pay all its due debts with the proceeds of its assets sale.
- To present a resolution with an explanation, it is required to issue notices for a general meeting
- An ordinary or special resolution for winding up requires a majority of 34%. As soon as the resolution is passed, the winding up will begin.
- The winding-up is voluntary if the majority believes that it is in everyone's interest to wind up the company.
- The registrar must be notified of the appointment of a liquidator within ten days of the resolution being passed by the board.
- As soon as the resolution is passed, the resolution has to be published in a newspaper and notified in an official gazette.
- Within 30 days of the date of the general meeting, certified copies of the resolutions passed at the general meeting must be filed with the Secretary of State.
- Liquidators' accounts should be prepared, and audited, after the company's affairs are wound up.
- Company general meetings must be held
- When all the affairs of the company have already been wound up and it is about to be dissolved, a special resolution must be passed for the disposal of books, documents, and other important documents
- In order for a dissolution order to be passed, a copy of the accounts must be submitted within 15 days of the final general meeting.
- In 60 days of receiving the application for dissolution, the tribunal shall issue an order for dissolution if the accounts are in order and all compliance requirements have been met.
- As soon as the order is completed, the liquidator will file a copy of it with the registrar.
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